Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

Oral Answers to Questions — NATIONAL FINANCE

Public Expenditure

Mr. Flannery: asked the Chancellor of the Exchequer if he has any further plans, consequent upon his recent Budget, to increase public expenditure in order to bring down still further the number of unemployed.

The Chief Secretary to the Treasury (Mr. Joel Barnett): My right hon. Friend described his plans in this respect in his Budget Statement.

Mr. Flannery: While welcoming the details of the tax cuts for the lower-paid and the free school milk, and so on, and while knowing that there would be twice the level of unemployment if the Tories were in power—[Interruption.] That always provokes Opposition Members, because it is true. While I welcome the measures that have been taken, may I ask my right hon. Friend whether he agrees with me that the impact on unemployment can be of only the slenderest kind and that it is therefore necessary for a major amount of cash to be pumped into the economy in order to ensure that unemployment is brought down even more than it has been so far?

Mr. Barnett: I certainly agree with the first part of my hon. Friend's supplementary question, but I am afraid that I do not agree with him on the second part. As I pointed out in my speech in the Budget debate, I think that to pump more into the economy might in the short term add a little to output, but I do not think that in the longer term it would be at all helpful to the objective that we both have in mind.

Mr. Marten: It is true that if one adds all the unemployment benefit that is paid out to the cost of the various job creation and allied schemes, the total amounts to about £1,822 million a year?

Mr. Barnett: I should like the hon. Gentleman to put down a Question about the precise figure, but it is certainly a lot of money.

Mr. Gould: Will my right hon. Friend confirm that if the inflow of foreign capital in October last year caused an increase in the money supply, the outflow of foreign capital which presumably accompanies the current selling of sterling will reduce the money supply? Should this not give him greater freedom on the public expenditure front?

Mr. Barnett: As my hon. Friend knows, there are many factors to be taken into account in considering this matter, and we shall take them all into account in due course.

Mr. Peter Walker: Has the right hon. Gentleman any estimate of the figure of the increase in public expenditure resulting the increase of unemployment during the period of office of the present Government?

Mr. Barnett: As the right hon. Gentleman knows, he would need to table a Question about that. It is very difficult to be precise about that relationship, as he very well knows. However, if he cares to table a Question, I shall do my very best to answer it.

Mr. Parry: Does my right hon. Friend agree that more public expenditure would make a significant contribution to the whole question of unemployment, particularly in the construction industry, which on Merseyside is in a critical condition?

Mr. Barnett: As my hon. Friend will know, we have increased public expenditure on the construction industry, over two years, by about £800 million. I am bound to tell him, however, that the simple fact of putting more money into the economy while disregarding the rest of the factors affecting it would not necessarily be helpful. I think that it is much better to do as we are doing, as my right hon. Friend the Chancellor laid down in his Budget Statement—namely, to go for a sustained growth of output over a long period.

Mr. Tapsell: Is the Chief Secretary aware that it is precisely because the Chancellor has allowed public expenditure to rise this year, as compared with last—by 6 per cent., or £4,000 million—that the Budget has so damaged confidence at home and abroad, and that this will have a very serious and bad effect on future employment prospects?

Mr. Barnett: What would have an appalling effect on both the internal and external confidence would be the thought that the hon. Gentleman and his hon. Friends had the slightest chance of ever forming the Government of this country. He knows very well that the fact is that everything that Opposition Members have specifically suggested would increase public expenditure rather than cut it.

TUC

Mr. Molloy: asked the Chancellor of the Exchequer when he next expects to meet the TUC.

The Financial Secretary to the Treasury: Friend is in constant touch with representatives of the TUC at the NEDC and on other occasions, but he has no specific date in mind for a meeting at present.

Mr. Molloy: When my right hon. Friend the Chancellor does meet the TUC will he acknowledge that the millions of ordinary working people who have made such a contribution to the fight against inflation will be looking forward to a justifiable relaxation of the reins of constraint and will wish to see a gradual return of their union representatives to a form of free collective bargaining? Can my right hon. Friend give an assurance that the lifting of the restrictions, when it happens, will apply to the public sector as well, and that it will not be discriminated against? In the public sector the restrictions have created many anomalies, which must be ironed out. Those in the public sector are entitled to full consideration.

Mr. Sheldon: My hon. Friend is quite right. I am happy to acknowledge the contribution to the fight against inflation by the trade union movement, as are the Government generally. My hon. Friend is also right to point out the increase in the number of anomalies. The Government must, of course, have responsibility for the public sector. It is

this that throws in doubt the aims of the Conservatives, because they cannot avoid this. The Government have responsibility for the public sector and for that reason they have responsibility in the matter of pay generally.

Mr. William Clark: Can the Chancellor be persuaded to explain to the TUC when he next meets it why the average working man is paying far more tax today than he was when this Government came in?

Mr. Sheldon: I suppose that the hon. Gentleman has in mind income tax. The proportion of income tax is lower than it was a number of years ago. I see that the hon. Gentleman seems to doubt this. May I give him the figures. Compared with the golden days of Macmillan, when the proportion of our revenue paid in income tax was 35·3 per cent., it is now 33·9 per cent. What the hon. Gentleman has in mind is the decline in real take-home pay as a result of the levels of import payments that we have had to make as a result of North Sea oil and other commodity prices.

Mr. Frank Allaun: Is my right hon. Friend aware that the TUC and the Labour Party are still pressing for a full restoration of the cuts in housing, health and education, particularly because of the massive unemployment? Secondly, we hope that the action promised by my right hon. Friend the Chancellor—or, rather, hinted at by my right hon. Friend—will take place this summer.

Mr. Sheldon: I note the regular concern that my hon. Friend brings to these matters. To the extent that it is possible to bring about these increases—and we have been very successful in these areas in the past—I accept much of what he says, but he must bear in mind that this expenditure can only go hand in hand with our economic recovery. That must be the prime motive force behind the kind of expenditure that he wishes to see and that I wish to see, too.

Sir G. Howe: Following the point made by my hon. Friend the Member for Croydon, South (Mr. Clark), will the right hon. Gentleman confirm that at the time of the last Conservative Budget the percentage of the pay packet of the average family with two children being paid in income tax and national insurance was


21 per cent., and that after the Budget that this Chancellor has just introduced the percentage is still in excess of 25 per cent.? For those on twice or three times average earnings the increase in the bite taken by taxes is even larger.

Mr. Sheldon: I am fully aware of the credit that the right hon. and learned Gentleman seeks to claim as a result of the tax reductions of the Chancellor of the Exchequer of that time, Anthony Barber, but the right hon. and learned Gentleman knows and I know how that was paid for. It was paid for by the gross inflation of the money supply, which is still a matter of concern and a matter on which the Conservatives continually fight battles, not against us but against their own predecessors.

Earnings

Mr. Viggers: asked the Chancellor of the Exchequer what assumption he has made in his Budget judgment of the overall increase in earnings in the year from August 1978.

Mr. Joel Barnett: I refer the hon. Member to the Financial Statement and Budget Report.

Mr. Viggers: I am grateful to the right hon. Gentleman for that reply. Is he aware that the Financial Statement makes it clear that the Chancellor is assuming pay increases at an average of one-half the present pay round levels, which means not more than 7 per cent.? As this is less than the expected rate of inflation, is he telling us that the British people, under Socialism will again, next year, be worse off?

Mr. Barnett: No, but I tell the hon. Gentleman that he wholly misunderstands the purpose of what was said. It would mean not a fall but an increase in real living standards, as has been going on over the current pay round. What matters over the period after the current round is that there should be moderation in pay settlements. This is understood by the TUC, and I have no doubt that in co-operation with it, of the sort that we have had before, we shall achieve our objective.

Mr. George Rodgers: Does my right hon. Friend agree that the Opposition's advocacy of substantial increases in the pay of the Armed Forces and the police,

at the same time as the Opposition indicate that they intend to cut public expenditure should they achieve office, would mean a cut in hospital and health services?

Mr. Barnett: I agree with my hon. Friend, but I am never surprised at the irresponsibility of the Conservative Front Bench. My hon. Friend is right, but the Conservatives will never spell out precisely what they would cut. Perhaps one day they will tell us.

Import Prices and Wage Costs

Mr. Arnold: asked the Chancellor of the Exchequer what formula he employs for determining the relationship between import prices and wage costs.

Mr. Joel Barnett: The formula is rather complex. It begins … "ERPR over ERPR to the power of minus one equals, Z square bracket 0·5 sigma Alpha 1, where I equals 0 to 2, bracket, PR over PR to the power of minus 4 minus one". It goes on a lot further. I therefore think it might be better if I refer the hon. Member to the publication "HM Treasury Macroeconomic Model Technical Manual 1977", a copy of which is available in the Library. The formula that he wants is set out on pages 8A, 4, 5 and 6.

Mr. Arnold: I am much obliged to the Chief Secretary, but the formula is also contained in a somewhat abbreviated form in his latest Treasury working paper. The question that I wanted to put to him was this: as changes in the exchange rate inevitably feed through to domestic costs and prices, and as we now have a much clearer understanding than we used to have of the way in which these offset any initial change in price and cost competitiveness, is it not the case that if the Government were once again to embark upon a policy of repeated devaluations, such as some of their Friends have ben suggesting to them, any resulting gain in competitiveness could be obtained only at the cost of accelerating inflation?

Mr. Barnett: I do not agree with what the hon. Gentleman says. Of course, changes in the exchange rate have an effect on inflation, but this is not the only element in industrial costs. A major element in industrial costs is, of course, pay. That is why we need, and hope to


achieve, moderation in pay settlements, which will help everyone on both sides of industry and in the country generally.

Mr. Powell: If that is how the Treasury does it, is it surprising that its macro-economic advice has been persistently wrong?

Mr. Barnett: I am surprised at the right hon. Gentleman. I would have thought that he at least would have understood it.

Dr. Bray: Is my right hon. Friend aware that he did not read his brief entirely correctly? Neverthless, the point made by the hon. Member for Hazel Grove (Mr. Arnold) is a complete parody of the Treasury working paper. That working paper shows that there is a very long-lasting devaluation effect, which could improve the balance of payments by about £4,000 million a year four and six years after a 10 per cent. devaluation?

Mr. Barnett: I am happy to pay tribute to my hon. Friend as another who will understand these complex figures. But he was quite wrong when he said that I read the answer incorrectly. I read it quite correctly. I have it here, and I should be happy to read it again if it pleased the House. I take my hon. Friend's point about the paper to which he referred, but the consequences for the balance of payments and many other matters depend on the time extrapolation as well as many other factors.

Indirect Taxation (European Community)

Mr. Clemitson: asked the Chancellor of the Exchequer what proportion of total revenue is raised by indirect taxation in each of the member countries of the European Economic Community.

Mr. Robert Sheldon: With permission, I will arrange to have the information printed in the Official Report.

Mr. Clemitson: Is it not true that the standard rate of VAT, for example, is almost twice as high in the other member countries of the EEC as it is here and that in France, for example, VAT is charged on food, passenger transport and fuel? Therefore, is not the logic of the argument for a shift from direct to indirect taxation that either the rates at which indirect taxation are charged rise,

which is inflationary, or that the net is spread ever wider to cover more and more essential goods and services, which is regressive, or a combination of the two?

Mr. Sheldon: My hon. Friend is right in drawing attention to the considerable variations in the incidence of the value added tax in many other countries. There is a very wide range indeed. But I point out that the amount of indirect taxes collected in Denmark, Luxembourg and the Netherlands is less than ours therefore, we are not so much out of line with what applies in many other Community countries. As for the regressive incidence of the indirect taxes, it is not as much as it used to be.

Mrs. Kellett-Bowman: Is the right hon. Gentleman aware that the working man with two children in this country on average wages pays more in direct tax than any other comparable worker in the Community? As the right hon. Gentleman has also told us of three Community countries in which indirect taxes are lower than in this country, is he proud of the burden of taxation on our working people?

Mr. Sheldon: The consequence of low indirect taxation is relatively high direct taxation, because those are the two elements in total taxation. My right hon. Friend the Chancellor of the Exchequer has accepted that there should be a move from direct to indirect taxation in the way that he has announced. As for the total burden, this has to be taken into account with the changes that were made in the Budget, which amount to a reduction in taxation generally.

Mr. Stoddart: Will my right hon. Friend confirm that Britain's net contribution to the EEC for the current financial year will be £750 million, which is equivalent to 2p off income tax? That is the measure of the contribution that this country makes to Europe through direct taxation.

Mr. Sheldon: I am aware of my hon. Friend's continual concern with the problems of the Community, but this is a matter for another Question, and I urge him to seek his reply there.

Mr. Peter Rees: I was happy to note that the Financial Secretary repeated the statement of the Chief Secretary that


VAT is not nearly as regressive as had been thought. In view of that statement, and the statement of the Chancellor of the Exchequer, which he repeated, that there will have to be a shift from direct to indirect taxation, when can we expect that shift to take place?

Mr. Sheldon: The hon. and learned Gentleman will have to wait for developments in the economic situation.

Following is the information:

The proportion of total revenue raised by indirect taxation in each member country of the EEC in 1975, the latest year for which data is available, was as follows:


United Kingdom
46·8 per cent.


Belgium
48·3 per cent.


Denmark
40·0 per cent.


France
66·9 per cent.


Germany
47·9 per cent.


Ireland
63·0 per cent.


Italy
69·1 per cent.


Luxembourg
41·0 per cent.


Netherlands
43·4 per cent.

Total revenue has been taken to include all national insurance contributions. Indirect taxation comprises central Government taxes on expenditure, payroll taxes, employers' national insurance contributions and local authority rates.

Consumption

Mr. Alan Clark: asked the Chancellor of the Exchequer at what percentage rate he expects consumption to be rising in the second and third quarters of the current year.

The Minister of State, Treasury (Mr. Denzil Davies): My right hon. Friend's forecast of the economy, published in table 5 of the Financial Statement and Budget Report, suggested that the real value of personal consumption in the second half of the year would be 5 per cent. to 6 per cent. higher than a year earlier. Forecasts of individual quarters are not published.

Mr. Clark: But is it not the case that in the Budget Report, in projecting the figures for consumption and also the critically related figures for imports, the Treasury has abandoned the use of its own model and has preferred to rely on the middle range of views of a number of economic forecasters—to use its own language? Doubtless this includes astrologers as well as Greek scholars, but why has the substitution been made?

Mr. Davies: I am always glad to hear that the Treasury from time to time abandons some of its models. I think that the point that the hon. Gentleman was trying to make was that there is a danger that when an extra amount of money is put into the economy, some of that will go into imports. This we accept, partly because our industry has not been able to compete as well as it should with the industries of our competitor countries.

Mr. Ron Thomas: Given the fact that, if we deduct the cost of fuel, two-thirds of our import bill is now made up of finished and semi-finished manufactured goods, will my right hon. Friend give us an indication or guesstimate of how much of this increased consumption will find its way into the import of finished and semi-finished manufactured goods? Will he, even at this late hour, consider introducing selective import controls on those goods?

Mr. Davies: As to the amount of money that will go into imports, the October measures and the Budget measures in April meant about £3,000 million extra personal spending power. Of that amount, in 1978–79, the estimates—I agree that "guesstimates" might be a better word—are that about £500 million to £700 million will go into imports. That is not just semi-manufactured and manufactured goods but all imports. That is the kind of proportion in 1978–79.

Inflation

Mr. Neubert: asked the Chancellor of the Exchequer what is the latest annual rate of inflation.

Mr. Joel Barnett: In the year up to March 1978 the retail prices index rose by 9·1 per cent. I shall not be satisfied with our progress until our inflation rate is down to the level of our international competitors.

Mr. Neubert: As the Chancellor of the Exchequer stated on 15th July last year that the double-figure increase in earnings would mean double-figure inflation, what prospects are there for inflation with aggregate earnings running at 14 per cent.?

Mr. Barnett: First, we do not know what aggregate earnings are running at.


But the hon. Gentleman is surely aware that although earnings represent a major part of industrial cost, they are not the only element. Indeed, it will be clear to him that that is the case, because we have a 9·1 per cent. year-on-year rate of inflation.

Mr. Kilroy-Silk: What prospects are there for inflation if we are to remove all control of prices, as the Opposition want?

Mr. Barnett: I never try to make forecasts about what would happen if we did what the Opposition wanted. What we know is that the rate of inflation, year on year, will be down to 7 per cent. by this summer, and should stay there throughout the rest of this year.

Mr. Tapsell: Has the Chief Secretary noted that the almost unanimous reaction to the Budget has been that rising public expenditure, combined with the consequential fall in the international value of sterling, is likely to bring about a rising rate of inflation from the second half of this year?

Mr. Barnett: I know that the hon. Gentleman, when not in the House, spends most of his time in the City, and that it may be the view that he hears there. The fact is that the rate of inflation next year should continue to decline, but it will do so only if we have moderation in pay settlements. It will also depend, of course, on what happens to the growth of world trade and to import prices. The simplistic view that the hon. Gentleman and his friends in the City seem to be taking is a misleading and wrong view of what is likely to happen.

Investment Income Surcharge

Sir A. Meyer: asked the Chancellor of the Exchequer what representations he has had in connection with abolishing or reducing investment income surcharge on income derived from compensation awarded by the courts.

Mr. Robert Sheldon: My right hon. Friend has received occasional representations to this effect.

Sir A. Meyer: Since this compensation is awarded by the courts to someone who, by definition, has suffered great misfortune, perhaps bereavement, certainly

resulting in a substantial loss of income, what conceivable moral justification is there for applying a penal rate of taxation on the interest on such sums?

Mr. Sheldon: Several problems arise in connection with this matter, but we hope to be able to deal with certain aspects of it. I am sure that these matters will be brought up during the Committee stage of the Finance Bill.

Mr. Peter Rees: Arising out of the Financial Secretary's reply and the anomalies that have been disclosed as the result of my hon. Friend's Question, and in view of the Labour Party's continuing commitment to a wealth tax, does the Financial Secretary not feel that there may be a case for the total abolition of the investment income surcharge?

Mr. Sheldon: The views of the Opposition seem to be curiously divided on this matter. If the hon. and learned Gentleman is now saying that it is the Conservatives' intention to abolish the investment income surcharge, I should have thought that that would be a matter for his right hon. and learned Friend the Member for Surrey, East (Sir G. Howe). If the Conservatives draw no distinction between money that is in the form, say, of inherited wealth or acquired assets, and that which is obtainable by the work of the individual, with the consequential expenses incurred in earning a living, I can only say that that is not the view of the Government.

Governor of the Bank of England

Mr. Crawford: asked the Chancellor of the Exchequer when he next intends to meet the Governor of the Bank of England.

Mr. Gould: asked the Chancellor of the Exchequer when he intends next to meet the Governor of the Bank of England.

Mr. Denzil Davies: My right hon. Friend maintains close contact with the Governor of the Bank of England, meeting him on a regular basis and also as and when circumstances require.

Mr. Crawford: Will the Minister tell the Governor of the Bank of England that if the Government do not accede to the SNP demand that there be a 2p cut in


the standard rate of income tax, the Budget strategy will be in ruins? Does the Minister understand that the SNP, unlike other parties in the House, is in deadly earnest about this?

Mr. Davies: After the Garscadden by-election, I am not sure whether the SNP is in a position to make demands on anybody. Indeed, after the next General Election there will be fewer SNP Members here to make such demands.

Mr. Gould: In view of the welcome given by industry to the more competitive pound, will my right hon. Friend instruct the Bank of England to take an equally relaxed view, and make it clear that, far from spending £100 million per day from the reserves, it should neither raise interest rates nor use money from the reserves in futile and damaging attempts to prop up the exchange rate?

Mr. Davies: My hon. Friend's views on this matter are well known. It is not true to say that the whole of industry always welcomes the depreciation of the pound. Some companies do well and some do not, as a result of it. In our case the main problem is not price competitiveness but, rather, the quality, design and nature of the products that we sell. If we can make them better, we shall solve our industrial problems.

Mr. Ian Stewart: Do the Government these days have a policy on exchange rates? If so, is the decline in the value of the pound since the Budget inconsistent with it?

Mr. Davies: The Government do have a policy on the exchange rate, but I cannot tell the hon. Gentleman.

Mr. Wrigglesworth: Is my right hon. Friend aware that more than 100 of his right hon. and hon. Friends have put their names to a motion asking for statutory powers for the Council for the Securities Industry—the new Council which is to supervise the City? Will he consult the Governor of the Bank of England about this matter and see whether statutory powers, or at least public participation, can be introduced in respect of this body?

Mr. Davies: I am well aware of the motion that has been put down. My hon. Friend will appreciate that this is primarily a matter for my right hon. Friend

the Secretary of State for Trade, who, I believe, has had consultations with the Bank of England about this matter.

Mr. Burden: When he next meets the Governor of the Bank of England, will the Chancellor announce when the Government intend to keep their promise to repay the first £1 billion of the IMF loan? Until such loans are repaid, the Government are under an obligation to carry out the economic policy that was imposed when the IMF made the loan.

Mr. Davies: As the hon. Gentleman will know, the Government are repaying money that they borrowed from the IMF. I am sure that he and his hon Friends welcome that development.

Income Tax

Mr. Newton: asked Mr. Chancellor of the Exchequer what is his estimate of the additional amount of income tax which will be paid in 1978–79 as a result of the increases in national insurance pensions and benefits announced on 12th April 1978.

Mr. Denzil Davies: About £40 million.

Mr. Newton: Can the right hon. Gentleman confirm that well over 1 million people will be liable to tax this year who were not liable last year? Can he tell me how many, in respect of that figure, will be retirement pensioners and widows?

Mr. Davies: I cannot give the hon. Gentleman the exact figure for the percentage among retirement pensioners and widows, but he will appreciate that the proposals in the Budget to increase personal allowances and introduce a reduced rate band are in the main more beneficial to retirement pensioners and widows than reducing the standard basic rate of income tax. Since he is concerned about this matter, I take it that he will not be supporting the views put forward in his party for a reduction in the basic rate as opposed to a reduced rate band and increased allowances.

Mr. Costain: In view of the right hon. Gentleman's last answer, is he not ashamed of the fact that we are one of the few countries which charge income tax on war widows' pensions?

Mr. Davies: This is a complicated matter. Of course, 50 per cent. of the


pension is not now so charged. I think that the basic principle is a right one—that income should be charged to income tax from whatever source it comes. The way to deal with these problems is to increase thresholds and try to reduce the rate of tax that we charge rather than to exempt some incomes and not others.

Mr. Rifkind: asked the Chancellor of the Exchequer which countries now have a higher top rate of tax than 83 per cent. other than those countries which incorporate local rates or taxes into their general tax structure.

Mr. Robert Sheldon: The countries known to have top rates of over 83 per cent. on employment income, if we leave local income taxes out of account, are Algeria, Egypt, Portugal and Tanzania.

Mr. Rifkind: Does the Minister feel that that answer indicates the depths to which the Government have brought the economy of this country? Was the Chancellor of the Duchy of Lancaster correct in saying at the weekend that the Chancellor of the Exchequer agreed with him that a reduction in top rates of tax was overdue and would be implemented soon?

Mr. Sheldon: If one takes local income tax into account there are a number of developed countries that come into the category as well. As for the highest rates of income tax, the Chancellor of the Exchequer has said from time to time that he looks forward to easing this burden when circumstances allow.

Budget

Mr. Rost: asked the Chancellor of the Exchequer when he expects to introduce his next Budget.

Mr. Joel Barnett: I have nothing further to add to what my right hon. Friend said in the Budget debate on Monday 17th April on the possibility of introducing further measures this year.

Mr. Rost: As the Chancellor's thirteenth Budget, like all his others, has again failed to provide the incentives to restore prosperity and jobs, will the Government at least support the Conservative amendments, which will go some way to making this a Conservative Budget?

Mr. Barnett: I am not sure how the hon. Gentleman can say that the Conservatives will deal with the problems when the tax reliefs have not yet worked their way through. When they do, I am sure they will be beneficial. I do not yet know what kind of irresponsible amendments the Conservatives will be tabling.

Mr. James Lamond: Will my right hon. Friend tell the Chancellor, when he introduces his next Budget, to take account of the fact that public expenditure has been reduced by more than £1,000 million, due to the cash limit methods introduced in 1976–77, and that all the present estimates of the outturn this year are that the shortfall will be even greater than that figure?

Mr. Barnett: I think that my hon. Friend misunderstands the working of the cash limits system. Only about one half of the shortfall in 1977–78 relates to cash-limited expenditure. In any event, I hope that my hon. Friend will agree with me that when we fix our priorities in expenditure we want to try to ensure that those priorities are met. Of course, I do not welcome a massive underspend. What I would not welcome either would be an overspend that resulted in our own priorities being put out of line.

Mr. Tapsell: Will the Chief Secretary take this opportunity to apologise to the House and to the country on behalf of himself and the Chancellor for the fact that their irresponsible talk, subsequently repudiated by the Prime Minister, of a further Budget in July has knocked thousands of millions of pounds off the value of Government bonds and industrial shares and weakened international confidence in sterling?

Mr. Barnett: I can only tell the hon. Gentleman that he and his hon. Friends, and those who seek to misinterpret words that have been spoken in this House, do much more damage than any Labour Member could ever do.

Mr. James Lamond: asked the Chancellor of the Exchequer how many letters he has received from members of the public on the subject of his Budget Statement of 11th April.

Mr. Robert Sheldon: About 100 a day.

Mr. Lamond: Will the Chancellor make it plain, when answering these


letters, that the Tory slogan "pay as you spend" really means that Conservatives want to transfer the burden of taxation from the rich to the poor—particularly to pensioners and those who are not paying income tax at present?

Mr. Sheldon: My hon. Friend's assumption will be tested in due course during the Committee stage of the Finance Bill. Certainly, we have sought to ensure that the burdens of taxation are shared equally, bearing in mind the problems that we inherited. The country as a whole has come to understand that and is grateful to the Government for the way in which they have acted.

Mr. Adley: Does the Minister think that a cut of 1p in the standard rate of income tax would so destroy the Government's Budget strategy that the Chancellor and Prime Minister might put their heads together and decide that it would be too much for the country to stand, and that a General Election would be necessary? If 1p is not enough for that, would those on the Treasury Bench get toegther and decide how much would have to be cut from tax before a General Election was needed?

Mr. Sheldon: We shall come to all these questions in the Finance Bill debates. The Budget judgment itself is a matter that cannot be quite so easily tampered with as some hon. Members, without the necessary experience, might suggest. When one makes changes one must take account not only of the total amount but of the phasing, to ensure that the money coming in is in line with what is required, at the right time. Otherwise one may find that there are certain distortions. I urge Opposition Members to study this more effectively than they have in the past.

Mr. Ron Thomas: Does the Financial Secretary agree that we should try to bring in a different direct tax system? Is it not a fact that at present, in order to give £100 in tax rebates to a person on £2,500 a year, we also have to give £750 to a person on £25,000 a year?

Mr. Sheldon: I am aware of some anomalies and problems in the present taxation system. I urge my hon. Friends to take account of the fact that there would be greater difficulties if we were to change these fundamental matters in

the way that has been suggested by professors and others. These are complicated matters, and one must bring about changes to meet particular problems. The restructuring of the taxation system needs much more careful consideration.

City of London

Mr. Hoyle: asked the Chancellor of the Exchequer what plans he has to meet representatives of the City of London in the near future.

Mr. Denzil Davies: My right hon. Friend has no plans to meet representatives of the City of London in the immediate future.

Mr. Hoyle: Will my right hon. Friend say what measures we shall take against those sections of the City which once more seem determined to sell the pound short, which would fuel inflation at the expense of the nation? That seems a queer form of patriotism to me.

Mr. Davies: Many sections in the City seem to react in a short-term way to any policy charges. Indeed, I sometimes think that, on average, there are more manic-depressives in the City than in other parts of the community.

Mr. Biffen: Is the right hon. Gentleman aware that, none the less, there are some uncertainties about Government policy which are causing difficulty and which we would do well to resolve at an early opportunity? Can he therefore indicate what the Government's policy is in respect of curbs on dividends when the present statutory constraints run out?

Mr. Davies: The policy was clearly enunciated by my right hon. Friend in a Written Answer. As the hon. Gentleman knows, it is that if action is not taken—if more measures are not introduced to the House—the present statutory restrictions will be lifted. That is the answer that my right hon. Friend gave. The hon. Gentleman must wait and see.

Mr. Heffer: If my right hon. Friend does at some time meet representatives of the City, will he ask them not to act like frightened fillies at the sight of a stallion in the next field whenever my right hon. Friend, or any other of my right hon. Friends suggests that following a Summit meeting there might be further proposals to help the economy of this


country? Will he also ask them actively to encourage the use of the money that is lying around in the City for investment in this country?

Mr. Davies: My hon. Friend's second point is quite right; there seems to be a general desire in the City to invest any available money abroad. Over the years it seems to me that the City has paid more attention to foreign investment than investment in this country. That is to be deplored.

Mr. Peter Rees: Will the Minister of State make clear what the Government's policy is with regard to dividend restraint?

Mr. Davies: I have answered that question, although it was not on the Order Paper. The policy remains as my right hon. Friend the Chancellor mentioned to the House in a recent Written Answer.

Pay Settlements (Government Action)

Mr. Michael Latham: asked Mr. Chancellor of the Exchequer what is the current number of firms on the blacklist and subject to discretionary sanctions for having made payments to their employees in excess of the voluntary pay guidelines.

Mr. Joel Barnett: Thirty-one.

Mr. Latham: Having now stuffed their objectionable contract conditions down the throats of British industry, why do the Government still need to keep the secret black list as well?

Mr. Barnett: It is actually rather interesting. When we debated this matter we were told that we should publish the names of the people on this black list. We said that we would write to the firms concerned stating that if they were agreeable we would publish the names. Out of the numbers to whom we wrote, 16 replied and only one agreed.

Mr. Cope: Are there any large firms on this black list, or are they all small firms, which are easy to bully?

Mr. Barnett: No, there are both.

Building Societies Act (Investment Protection)

Mr. McCrindle: asked the Chancellor of the Exchequer if he is satisfied with the operation of the Building Societies Act so far as it relates to the protection of investors.

Mr. Davies: This is one of the questions that we shall be considering when inquiries into the irregularities at the Grays Building Society are completed. Meanwhile the hon. Member will have noted that the Building Societies Association has undertaken that the Grays shareholders and depositors will not lose their money.

Mr. McCrindle: I pay full tribute to the Building Societies Association in general and the Woolwich Equitable in particular for their action in the aftermath of the Grays Building Society affair. Will the Minister make sure that the legislation, which was introduced nearly 20 years ago, for the protection of building society investors remains adequate in the light of recent events?

Mr. Davies: The hon. Member is right. Section 43 of the Building Societies Act 1962 covers cases of this kind. Discussions are going on with counsel and others with a view to putting the scheme into operation to safeguard depositors.

Mr. Budgen: Will the Minister confirm that the Government's present so-called guidance to building societies about the level of lending is unlawful, arbitrary and unjustified by the Building Societies Act, or any other lawful authority? It is particularly unfortunate because it is forcing building societies to buy gilts, which is against the whole spirit of their establishment in the first place.

Mr. Davies: These guidelines are not unlawful; they have been arrived at by voluntary arrangement and agreement between the building societies and the Government. I see nothing unlawful in that.

Oral Answers to Questions — PRIME MINISTER (ENGAGEMENTS)

Mr. Michael Marshall: asked the Prime Minister if he will list his engagements for Thursday 27th April.

The Prime Minister (Mr. James Callaghan): This morning I presided at a meeting of the Cabinet. In addition to my duties in this House, I shall be holding meetings with ministerial colleagues and others, including one with a delegation from Liverpool. This evening I shall be host at a dinner for the Prime Minister of New Zealand.

Mr. Marshall: Has the Prime Minister read today's Press reports, which say that he failed to meet the Service Chiefs of Staff before announcing his decision on the pay review last week? How can he justify his failure to hold that meeting, in view of the fact that the pay increase is inadequate to prevent further drainage from the Services? What assurance will he give that he will meet the Chiefs of Staff to review these matters urgently?

The Prime Minister: I am grateful to the hon. Member for that question. I received a memorandum setting out the Chiefs of Staffs' view in full, which I read first thing last Thursday. I reported this in detail to the Cabinet, and I minuted on the memorandum that I would meet the Chiefs of Staff to convey the Government's views and listen to their views. I proposed a date and time for a meeting. Then, as the House knows, I set out for Plymouth the following morning to open a fleet maintenance base. While I was there I received a message that the Chiefs of Staff did not think it necessary to meet me. I would like to add that there is no criticism of the Chiefs of Staff here. In fact, Sir Neil Cameron came to see me privately on these matters, and we had a full discussion on 17th March. I knew the Chiefs of Staffs' view, and the Cabinet knew it, too. I was perfectly open for a further meeting to be arranged if this was convenient.
I think that there is a certain amount of mischief-making going on in the Ministry of Defence at present.

Mr. Alan Clark: Sack the Minister.

The Prime Minister: I have found it very difficult in the past to try to check the nature and origin of the leaks, but when these leaks are mischief-making they are especially dangerous. I very much regret that The Times should have fallen for this particular piece of mischief-making.

Mr. Hoyle: In between his engagements, will the Prime Minister look at the figures for imports of Japanese cars, which have risen 25 per cent. in the last year? The voluntary agreement reached with the Japanese Government should be reviewed at an early date in order to avert damage to the British car industry.

The Prime Minister: These matters are under continuous review. I shall draw my hon. Friend's remarks to the attention of my right hon. Friend the Secretary of State for Trade.

Mrs. Thatcher: Does the Prime Minister recall saying before the Budget that what people wanted most was to pay less tax? How does he square that with figures published this week, which show that after this Budget 900,000 more people are paying income tax than before?

The Prime Minister: My recollection is that 340,000 were taken out of tax as a result of the Budget measures. Clearly, if as a result of increases in pay from collective bargaining, people have moved into the tax bracket, they will be required to pay tax. However, overall the answer is that £2·5 billion in tax cuts has been made or is proposed. I believe that the Leader of the Opposition wants to add to that figure.

Mrs. Thatcher: Will the Chancellor [HON. MEMBERS: "Oh."]—I am sorry, the Chancellor is not here—will the First Lord of the Treasury not accept that what the Government have done is to impose more tax on people who have a lower standard of living than was the case when we left office?

The Prime Minister: Taxes have gone up in an effort to secure national recovery, and they have had an impact. Obviously Conservative policy is to relieve the richer taxpayers and to see that poorer people spend more.

Mr. Mike Thomas: Is my right hon. Friend aware that many Labour Members share his view that he cannot be the only one who is concerned about the growth in inflation as expressed on the television news last night, that the Service pay settlement is fair and reasonable, and that we cannot possibly allow the position to arise in which Service pay increases are used as a lever to break the pay policy that applies to everybody else?

The Prime Minister: I accept that the Services, because of the extent to which they have fallen behind, are generally acknowledged to be in a position where we should stretch the limit as far as we can. My correspondence and the reactions


that I am getting show that that is accepted by a great many people. I always believe that the common sense of the country knows when the Government are behaving in a sensible way, even if it may not be strictly logical.

Mr. Churchill: Will the right hon. Gentleman explain how it is, as his Government's pay policy is supposed to be fair to all, that the Armed Forces over the past three years have fallen 32 per cent. behind? Why do they now have to make do with a miserable 13 per cent. when face-working miners under stage 3 have received an increase of no less than 46 per cent. under the guise of a productivity deal—three and a half times as much as the Armed Forces?

The Prime Minister: The answer to the first part of the hon. Gentleman's question is that the Armed Forces have fallen behind in 1978 for the same reasons that they fell behind in 1975—namely, because of the operation of the pay policy that was in force under a Conservative Government, as now under a Labour Government. The same reasons apply. As I have explained on previous occasions from the Dispatch Box, this is one of the difficulties of dealing with the pay of public servants. It is one to which I am quite ready to devote more attention. I hope that the hon. Gentleman, for all his brashness, will not try to set off the miners against the Armed Forces, or any other group of workers.

Later—

Mr. Baker: On a point of order, Mr. Speaker. In reply to Question No. Q1 the Prime Minister alleged that certain members of the Department of Defence were leaking information, the purpose of which was to undermine Government policy. Have you had any indication from the Prime Minister—if these allegations are correct, which he obviously believes—whether he intends to make a statement telling us what he will do about the matter?

The Prime Minister: Further to that point of order, Mr. Speaker. If I found out the source of this leak—it clearly must come from the Department of Defence—I should invite the Secretary of State for Defence to take appropriate action.

Oral Answers to Questions — EUROPEAN PARLIAMENT (ELECTIONS)

Mr. R. C. Mitchell: asked the Prime Minister whether he regards the date for direct elections which he agreed at the recent European Council as a binding commitment.

The Prime Minister: The agreement of all the Members of the European Council to hold direct elections in the period 7th to 10th June 1979 was a political decision. The legal form is that under article 10 of the Council Act of 20th September 1976 the final decision will be taken by the Council of Ministers after consulting the Assembly. This will be after the Act of September 1976 enters into force following ratification by all member States.

Mr. Mitchell: Now that the date has been fixed, does my right hon. Friend agree that in the run-up to direct elections it is important that information concerning the Community should be presented as accurately as possible? Will my right hon. Friend confirm that the European Commission has not proposed the abolition of the Milk Marketing Board? Will he care to comment on Press stories about the daily doorstep delivery of milk?

The Prime Minister: I understand that certain proposals have been put forward by the Commission that my right hon. Friend the Minister of Agriculture, Fisheries and Food is considering. However, I think that my hon. Friend and the House may take it as absolutely certain that we do not propose to be dictated to about the future of milk deliveries or the future of the Milk Marketing Board.

Mr. David Steel: Has the right hon. Gentleman noticed the statement from the Labour Party yesterday that it proposes to contest the elections so that its hostility to the Community can be represented? Although the right hon. Gentleman does not have responsibility in the House for statements from the Labour Party, will he make it clear that that is not the attitude that the Government are bringing to the elections?

The Prime Minister: Candidates for the Labour Party will in due course fight according to their convictions. I have nothing to say about that at the moment.

Mr. George Cunningham: Is it still my right hon. Friend's view that swift advance to economic and monetary union would be quite contrary to the interests of this country, and does he accept that the directly elected Parliament will be an immediate and major ally of the Commission in going for economic and monetary union as quickly as possible?

The Prime Minister: That seems to be a long way away, and even further removed from the original Question than the earlier supplementary questions. I am not ready to go into details on that matter this afternoon.

Mr. Marten: Is the right hon. Gentleman ready to go into other details? Will he give the House an assurance that we shall not take the final act of ratification of the elections, which we still have to take until the pay has been settled for the Members of the directly elected Assembly? Will he confirm that whatever the pay is, it will be taxable at United Kingdom rates?

Mr. Joel Barnett: Yes.

The Prime Minister: My right hon. Friend the Chief Secretary says that the answer is "Yes". Is my right hon. Friend sure?

Mr. Joel Barnett: indicated assent.

The Prime Minister: That means that there is collective responsibility and open government at the same time. I am ready to assure the hon. Gentleman—woe betide my right hon. Friend if he is wrong—that these emoluments will be taxable. As for the relationship between—

Mr. Marten: At United Kingdom rates?

The Prime Minister: I understand that the pay will be taxable at United Kingdom rates. If everybody else knows the answer, I do not know why I am asked. I cannot give the hon. Gentleman an answer on the relationship between the act of ratification and pay. However, if he tables a Question I shall ensure that the answer is given to him.

Oral Answers to Questions — WORLD ECONOMY

Mr. Norman Atkinson: asked the Prime Minister if he will make available

in the Library a copy of the submissions he is to put to the Bonn Summit concerning the world economy.

The Prime Minister: I have no plans at present to put any written document to the Bonn Summit. I am, however, already in touch with the other participants about ways to boost the world economy and increase international confidence. I will, of course, report to the House at the appropriate time.

Mr. Atkinson: Does my right hon. Friend agree that there is now an international tendency to drift into diplomatic secrecy in economic affairs in the same way that foreign affairs and defence matters are shrouded in secrecy throughout the world? If it is the fact that we can no longer stimulate the rate of economic growth in Britain because of increasing our external trade deficit, would it not be wise to widen the discussion that is to take place so that there may be a representation of all views about the necessity for the international regulation of trade and the introduction of import controls?

The Prime Minister: I do not agree with the first part of my hon. Friend's question. There is less secrecy in the discussion of public affairs than I have known in the 33 years that I have been in the House. There is more open government and open discussion than I ever recall on economic matters, defence matters and international affairs.
As for the limitation imposed on our national growth, the major limitation that is imposed is our failure, over many years, to secure a level of productivity to enable us to compete with a number of imported goods in a number of sectors. That is the major weakness that I have constantly emphasised. I believe that that view is shared by some on the Opposition Benches.
How is that to be remedied? There are discussions and decisions about limiting imports in these circumstances. If every country in the world follows that course—a great many countries are under increasing pressure to do so—the result will be less world trade rather than more world trade, and perhaps more unemployment. It could happen, but I do not think that we should encourage it. I think that we should try to secure a greater increase in the level of world trade.

Mr. Rost: What is it about the Government's appalling record that entitles the Prime Minister to go lecturing to the Heads of other more successful States urging them to abandon their successful economic management and replace it with the policies of failed Socialism? Would not he be better employed taking some lessons from them instead of whining at them?

The Prime Minister: I am willing to accept lessons from anybody including the hon. Gentleman, if he ever has anything sensible to say. What we are trying to do, in the face of 16 million unemployed in the Western world, is to pool our ideas to try to secure some progress in a number of areas that will enable the recession in the Western world to be overcome and growth to be resumed. I hope to have the hon. Gentleman's support in doing that.

Mr. Whitehead: Disregarding the ridiculous comment that we have just heard from the hon. Member for Derbyshire, South-East (Mr. Rost), will my right hon. Friend use his undoubtedly close relations with Chancellor Schmidt to impress upon him once again, that, because of Germany's position in the world at the moment and her vital zero rate of inflation at this time, there is a special responsibility on the Germans to bring about an expansion of world trade?

The Prime Minister: Chancellor Schmidt would accept that responsibility. He is much in favour of a growth of world trade. The question that he is asking is how best to secure it. That is the problem to which we shall be devoting our attention between now and July.

BUSINESS OF THE HOUSE

Mrs. Thatcher: May I ask the Leader of the House to state the business for next week?

The Lord President of the Council and Leader of the House of Commons (Mr. Michael Foot): The business for next week will be as follows:
TUESDAY 2ND MAY—Supply [14th Allotted Day]: motion to refer to the Committee of Privileges the matter of the publication of proceedings of the House; debate on the enlargement of the European Economic Community when

Document S/227/76 and the explanatory memorandum of 7th March 1978 will be relevant.
Motion on EEC Document R/3/77 on commercial agents.
WEDNESDAY 3RD MAY—Progress on the Report stage of the Wales Bill.
THURSDAY 4TH MAY—A debate on Rhodesia.
Motion relating to the Milk (Great Britain) (Amendment) Order.
FRIDAY 5TH MAY—Private Members' Bills.
MONDAY 8TH MAY—Progress in Committee on the Finance Bill.

Mrs. Thatcher: I have two questions to put to the Lord President. On the first business for Tuesday—the motion to refer to the Committee of Privileges the matter of the publication of the proceedings of the House—will he give a little more detail about the motion? Is it limited to that matter, or will it also refer to what transpired during business questions last week?
Secondly, will he defer until next week some business set down for later tonight—Lords Amendments to the Shipbuilding (Redundancy Payments) Bill? He will be aware that we asked the Government to put down a subsidiary Money Resolution to enable certain amendments, which would otherwise be out of order, to be discussed. Could that business be deferred until that motion has been put down?

Mr. Foot: On the second matter, I doubt whether the right course would be to defer that business. I think that the House should wait to hear the ruling of the Chair on the subject when the matter comes before the House.
On the question of the business for Tuesday—the reference to the Committee of Privileges—perhaps the best way that I can assist the House is to read the motion that we propose to put upon the Order Paper. It reads:
That the matter of the publication of the proceedings of the House, other than by Order of the House, in so far as the privileges of this House are concerned and the matter of the application of the sub judice rule during business questions on Thursday 20th April be referred to the Committee of Privileges.

Mr. Blenkinsop: Will my right hon. Friend tell us when we are likely to have the debate on the Windscale order in view of the considerable number of additional signatures that there are to the Prayer on the Order Paper?

Mr. Foot: I cannot give my hon. Friend the date of the debate, but I fully understand the interest of the House in the subject.

Sir David Renton: Is the right hon. Gentleman aware that the Wales Bill, as amended in Committee was not available in the Vote Office until 3 o'clock this afternoon, that Government amendments which will be in his name have not yet been tabled, that, therefore, with the best will in the world, it is not feasible for the Opposition to put their amendments down for Report and have them tabled until Tuesday morning and that, when they appear on the Order Paper on Wednesday, they will be starred? Does the right hon. Gentleman consider that that is fair to Members, to officials or to the Chair? Instead of trying to bludgeon the House in this way, will he postpone the beginning of the Report stage of that Bill, more especially as it seems to be only a one-day Report stage?

Mr. Foot: There is no question of seeking to bludgeon the House in this respect at all. Government amendments on the Bill will be going down on the Paper today. I should have hoped that that would enable the Opposition and all concerned to be able to deal with the matter. I fully accept that there is only a brief interval between the passage of the Committee stage and proceeding to the Report stage next week, but I believe that when the House deals with the Bill it will see that that is satisfactory. The second day will take place somewhat later. I hope that the House will recognise that this is the proper way to proceed.

Mr. John Ellis: May I draw the attention of my right hon. Friend to some difficulties that Back Benchers are having with regard to financial resolutions to Bills? My hon. Friend the Member for York (Mr. Lyon) was in some trouble yesterday. May I ask my right hon. Friend's help in seeking to draft an amendment to the Transport Bill, which I am unable to do, merely to give the

Minister power to give grants in respect of toll bridges? May I point out that according to "Erskine May", in page 7.15, in 1937—the Prime Minister might take note as he is here—the then Prime Minister said that he was drawing to the attention of Departments
that financial resolutions in respect of Bills should be 'so framed as not to restrict the scope'
of amendments. That has been restated since. I think that we can help ourselves and Mr. Speaker in this regard, because the present tendency of drawing up financial resolutions to Bills ever more tightly is making life impossible. I should have thought that the Opposition, if they had been about their business, would crack on to what is going on.

Mr. Foot: I shall certainly look into the general question that my hon. Friend has raised. I fully accept that it is a matter of considerable importance to Back Benchers and to the House as a whole. Whether I can assist on the particular Bill is another matter, but I shall certainly look at the general question that my hon. Friend has raised.

Mr. Carlisle: Referring to the first business on Tuesday, may I have an assurance from the Leader of the House that the motion that he proposes to put down is wide enough to refer also to the Committee of Privileges the conduct of the four Members whose names are set out in Early-Day Motion No. 385?
Does he agree that, important as is the principle of the right of the Press to publish matters spoken to in this House, the conduct of Members is equally important and that it would be intolerable to refer one without referring the other?

[That the conduct of the honourable Member for Barking, the honourable Member for Ormskirk, the honourable Member for Bristol, North-West and the honourable Member for Lewisham, West in supplementary questions to the business question on Thursday 20th April be referred to the Committee of Privileges.]

Mr. Foot: We have not made any reference in our motion to the conduct of Members one way or another, but it is my belief that the motion that we have put upon the Order Paper is wide enough to have a general discussion in the Committee of Privileges of all the associated matters. I think that is the right way


to proceed. We have drawn the motion in the widest possible manner to make that certain.

Mr. Spearing: In view of the unknown date or time of finish of the Agriculture Ministers' meeting in Luxembourg today, will the Leader of the House tell us whether the statement arising from that meeting will be tomorrow or next Tuesday or Wednesday? In that connection, will he tell us whether the milk order, which he announced for next Thursday, has any connection with the Milk Marketing Board and the discussions now going on?

Mr. Foot: On the second question, the milk order has nothing whatsoever to do with that subject. As for when the discussions in Luxembourg may terminate and a statement may be made in the House, I should not like to say anything here to injure or impair in any sense whatsoever my right hon. Friend's negotiating position.

Mr. Norman Lamont: Reverting to the Shipbuilding (Redundancy Payments) Bill, to which my right hon. Friend the Leader of the Opposition referred, is the Lord President aware that a Minister in another place admitted that that legislation discriminated against the private sector—which is why we are anxious to discuss it tonight? Whatever Mr. Speaker may rule about the Government refusing to amend the Money Resolution, have not Governments on many occasions in the past amended Money Resolutions subsequent to amendments in another place?

Mr. Foot: The House should wait and hear the ruling of the Chair. In another place measures which go beyond the Money Resolution to the Bill have been passed. The House must therefore wait to hear Mr. Speaker's ruling. I am sure that the House will abide by it.

Mr. Kilroy-Silk: Does my right hon. Friend recall that he, I and every other Member on this side of the House were elected on a specific commitment to repeal Section 2 of the Official Secrets Act and to introduce a freedom of information Bill? Does he agree that the Government's failure to do this is deplorable and greatly resented by many people who believe this party to have a radical and

reforming reputation? Would he now exert considerable pressure on his Cabinet colleagues to ensure that this important commitment is fulfilled?

Mr. Foot: I fully accept the importance of the subject, but I do not accept my hon. Friend's strictures. On a number of occasions I have indicated how the House will proceed on this question in the rest of the Session. We cannot introduce legislation to deal with this during this Session but we shall be presenting to the House a White Paper on the subject. This White Paper will refer to all these issues. I can go no further than that now.

Mr. Jopling: Will the Leader of the House arrange for a statement to be made next week on the way in which the Government intend to react to the recommendations of Mr. Justice Parker on the safety aspects of the Windscale development so that the House can consider the Government's reactions before we debate the special development order shortly?

Mr. Foot: I shall raise that aspect of the matter with the Secretary of State for the Environment. I am not sure whether it is desirable or necessary to have a further statement before the debate.

Mr. Christopher Price: Can my right hon. Friend confirm that the terms of the motion for first business on Tuesday will enable the Committee of Privileges to consider the whole sub judice issue and the whole relationship between the courts of justice and the House in that context and that it will not be limited?

Mr. Foot: We have tabled a motion in wide terms to embrace the many different motions that have been put on the Order Paper on this subject. I believe that they will all be eligible for discussion by the Committee of Privileges. If anyone has any doubt about that I refer him to the so-called Pickthorn resolution which was passed by the House in October 1947. This indicates how wide the Committee might go in discussing these matters. My hon. Friend can be assured that all these matters will be open for discussion.

Several Hon. Members: rose—

Mr. Speaker: Order. I propose to call those hon. Members who have risen to their feet so far.

Mr. Michael Marshall: In view of the uncertainty about the Government's quarterly Budget, would the Lord President find time, either now or next week, to announce that the date of the next Budget will be Thursday 27th July in time for the Summer Recess and in time for a General Election on Thursday 5th October?

Mr. Foot: In view of certainty of the premise in the hon. Member's remark, there is no need for me to comment on his conclusions.

Mr. Raphael Tuck: Is my right hon. Friend aware that many of us are perturbed at the news that Japan, far from keeping her word to curb the export of cars to the United Kingdom, has increased them? Is is possible to have a debate on this subject? In default of that, would my right hon. Friend try to persuade the Minister to come to the House and tell us what he proposes to do about it?

Mr. Foot: There have been statements to the House and replies to Questions by my right hon. Friend the Secretary of State on this subject. I shall discuss with my right hon. Friend whether there should be a further and fresh statement.

Mrs. Kellett-Bowman: Does the Leader of the House accept that since the days for praying against the nuclear reprocessing plant at Windscale expire on 12th May the matter is extremely urgent and that a statement should be made next week?

Mr. Foot: I shall discuss the matter with my right hon. Friend, but I am not sure whether a different and further statement should be made before the debate. I have given an undertaking to discuss the matter with the Secretary of State and I shall do so.

Mr. Flanery: In my view of the many problems in Northern Ireland, would my right hon. Friend consider allowing us to have a debate on Northern Ireland in the next few weeks?

Mr. Foot: I shall consider this, but I can make no promises.

Mr. Adley: Does the Lord President recall that last week I asked him to give the House an opportunity to debate the

purchase by British Airways of its new aircraft? Is he aware that since then there has been a reported disagreement in the Cabinet between the Secretary of State for Trade and the Secretary of State for Industry? It is also fair to say that there are different views on this side of the House. In view of the wide implications for the future of the British aerospace industry, would it not be helpful and fair if we were given time to discuss this matter at an early date?

Mr. Foot: I cannot promise a debate at an early date. I cannot accept the early part of the hon. Member's question, but I recognise that the subject is important.

Mr. Farr: When does the Leader of the House intend to proceed with the short Bill to implement the recommendations of the Speaker's Conference on Northern Ireland? Is he aware that this need not be a long Bill and that it is welcomed by both sides of the House? It is regarded as an urgent matter. Can he tell the House the timetable for this Bill?

Mr. Foot: I have nothing to add to what the Prime Minister said when he made the declaration of the Government's view on this subject.

Mr. Burden: Is the Leader of the House aware that the Minister of Agriculture, Fisheries and Food has issued a report on the export of live animals for slaughter? The Leader of the House will know of the great interest of hon. Members and the public in this subject. He will also know that such reports often take many years to come before the House. Since in that report the Minister states that matters will be taken into account which will come into effect in the European Community in August, will the Leader of the House undertake to provide an opportunity to debate the report in the near future?

Mr. Foot: I cannot give an undertaking in the exact terms for which the hon. Member asks, but I shall discuss the matter with my right hon. Friend when he returns.

Mr. Michael Latham: Will the Secretary of State for the Environment make a statement next week about whether it is the Government's policy that local authorities should require builders to sign the new counter-inflation conditions? Is he


aware that from this morning's The Times it appears that some local authorities think that they are already under a directive to do so, although they are not?

Mr. Foot: The Prime Minister has already indicated today that we must be careful about reports in The Times. I am sure that the hon. Member's warning will be taken seriously by all concerned.

Mr. Pym: Will the Leader of the House reconsider taking the Report stage of the Wales Bill next Wednesday? As he knows, normally there is a full and clear week between Committee and Report stages. The reprinted Bill has only just arrived at the Vote Office and there are only tomorrow, which is Friday, and next Tuesday before we take the Report stage. Is the Leader of the House aware that this will make it exceptionally difficult for us to examine the amendments and work them out, since we do not have the staff and facilities that the Government have? Would he please reconsider that matter?
I turn to the business which is to be taken on Tuesday. The Leader of the House will recall that in response to his hon. Friend the Member for Lewisham, West (Mr. Price) he said that all the circumstances and issues surrounding what was said in the House at business questions last Thurday would be open for debate in the Committee of Privileges. Can he confirm that, in view of the terms of the motion, it will be obligatory for the Committee to consider the conduct of Members on that occasion? I think that he sought to give that confirmation in reply to my hon. and learned Friend the Member for Runcorn (Mr. Carlisle).

Mr. Foot: I have nothing to add about the Wales Bill. Most of the Government amendments will be put upon the Order Paper today. I hope that the House will be able to deal with the matter next week. We wish to proceed with the Bill. I believe that when the House comes to it, it will find that it is possible to deal with it properly next Wednesday.
Turning to the subject of the motion on Tuesday, I would have thought that what I said would satisfy all hon. Members that we have tabled a motion which enables all of these issues to be discussed in the widest context. I have looked at all of the Early-Day Motions

which had been placed on the Order Paper. We came to the conclusion that the method I have proposed was the best way to proceed. We thought that it was better to table a motion which did not have any pejorative overtones or undertones. I would have thought that what we have done would command the assent of the whole House in that when the Committee of Privileges looks at the issue there will be no inhibitions upon anything that it wishes to discuss.

BALLOT FOR NOTICES OF MOTIONS FOR MONDAY 15TH MAY.

Members successful in the Ballot were:

Mr. Edward du Cann.

Mr. Richard Page.

Mr. James Johnson.

BILL PRESENTED

CIGARETTE SALES (DISTRIBUTION OF UNSOLICITED PUBLICITY MATERIAL)

Mr. Laurie Pavitt supported by Sir George Young, Mr. Clement Freud, Mr. McCusker, Dr. M. S. Miller, Mr. Roger Sims and Mr. Ron Lewis presented a Bill to prohibit the distribution of unsolicited publicity material produced for the purpose of promoting cigarette sales in the United Kingdom; and for purposes connected therewith; And the same was read the First time; and ordered to be read a Second time upon Friday 14th July and to be printed. [Bill 116.]

BUSINESS OF THE HOUSE

Ordered,
That, at this day's sitting, proceedings on the Motion standing on the Order Paper in the name of Mr. Chancellor of the Exchequer relating to the Committal of the Finance Bill shall not be subject to the provisions of Standing Order No. 40(3) and may be proceeded with, though opposed, for a period of three-quarters of an hour after Ten o'clock or after they have been entered upon, whichever is the later, and at the end of that period Mr. Speaker shall proceed to put any question necessary to dispose of those proceedings.—[Mr. Frank R. White.]

STATUTORY INSTRUMENTS, &C.

Ordered,
That Commission Document No. R/1985/77 relating to Home Study Courses be referred to a Standing Committee on Statutory Instruments, &amp;c.—[Mr. Frank R. White.]

Orders of the Day — FINANCE BILL

Order for Second Reading read.

Mr. Speaker: Before I call the Chief Secretary may I inform the House that there is a long list of right hon. and hon. Members who hope to catch my eye? There are five Privy Councillors on one side of the House who hope to catch my eye. I intend to follow the same practice as my predecessor, Mr. Speaker Selwyn Lloyd, and not call two Privy Councillors from the same party following each other.

3.55 p.m.

The Chief Secretary to the Treasury (Mr. Joel Barnett): I beg to move, That the Bill be now read a Second time.
Before I turn to some of the major parts of the Bill I wish to say a few words about the general shape of the tax measures. The Shadow Chancellor, the right hon. and learned Member for Surrey, East (Sir G. Howe), has said that for most wage earners the income tax cuts in the Budget will mean very little. Some newspapers took their lead from him and said the same thing. I have one here which said:
For most wage earners—or at least, for most of those who read this paper—the income tax changes introduced by the Chancellor last Tuesday are not going to make all that much difference.
That was the Financial Times of 15th April. I should imagine that that statement may well be correct, that not too many readers of the Financial Times got a great deal out of the Budget. But they would have got something, most of them quite a bit. On the whole, for most average taxpayers—the lower-paid taxpayer in particular—the Budget gave rather more than the somewhat crude arithmetic that the right hon. and learned Member felt it necessary to use to prove that the actual benefit to an average man was 14p. They were his words—

Mr. J. W. Rooker: The right hon. and learned Gentleman said £14.

Mr. Barnett: He changed that, following my hon. Friend's intervention, to 14p. We can understand the reasons why the right hon. and learned Gentleman felt it

necessary to try to prove his crude arithmetic in this way. When the Shadow Chancellor is under pressure to prove that what has been called a soft, cuddly exterior hides a tough Tory heart, the arithmetic cannot come much cruder. It was certainly crude on that occasion.
If the tax reliefs on the reduced rate band and the threshold had been doubled by another £2,100 million of relief I assume that the right hon. and learned Gentleman is not suggesting that that would have meant only another 14p. That point exposes the right hon. and learned Gentleman's arithmetic pretty well. His calculations—this is clear—counted the reduction in the child tax allowance, ignored the increase in family income from child benefit this April and in November, and deducted the increase in national insurance contributions which is a contribution to provide a benefit for the taxpayer through a supplementary earnings related pension. The real benefit to the average man and his family, as a result of the decisions affecting income tax and child benefits, will be £3·64 a week and not the bogus 14p the right hon. and learned Gentleman tried so hard to prove with his pretty crude arithmetic.
I willingly concede that we could have spread the reliefs less thinly. We could, to use the right hon. and learned Gentleman's method of calculation, have done everything by way of putting half on the basic rate—2p—and half on the threshold. The consequence of that, using the right hon. and learned Gentleman's calculations, would have been that for a man on £10,000 a year there would be extra relief of £2·09 a week. However, for a man on £40 a week it would have meant an extra 3p while a man on £60 a week would have lost 28p.
We could have done even more and done what the right hon. and learned Gentleman seemed to be implying and put it all on the basic rate, having a 30p basic rate for the amount that we have used in the Budget. The result of that, again using the right hon. and learned Gentleman's calculations, would have been, for this "average" man with two children under 11 on, say, £10,000 a year, an increase in weekly net take-home pay of £4·50. For a married man with the same responsibilities on £40 a week there would have been a loss of about


£1 and for a man on £60 a week a loss of about 40p a week. I do not think that the Tory style of spreading the tax relief would appeal to the country at large. It would be pretty thin for those earning £40 or £60 a week.
On the other hand, we could have done what seems now to be being proposed by the Opposition—cut the basic rate in addition to the present reliefs. We do not know yet exactly what the Opposition will propose. A cut in the basic rate of 1p would provide nothing for the 4 million lower paid now in the 25 per cent. reduced rate band. Even the average man put forward by the right hon. and learned Gentleman would get only 32p a week. That is what would happen for 1p off the basic rate in addition to what we have in the Bill.
All of this is to be offset by increasing the rate of indirect taxation. There is some confusion in the minds of the people about what is meant by the indirect taxes which would be increased. Many would not mind increases in indirect taxation on jewellery, furs and so on. However, the Opposition are proposing to reduce tax on those and increase it on ordinary clothing, bedding and furniture. Those are the offsetting savings that the Opposition would have us make.
I read the Press carefully and I know that there is a serious debate in the Shadow Cabinet about how irresponsible it should be. I am told that the hawks and the doves have been battling it out. I must say that from where I stand I would have thought of other kinds of animal to talk about.
But we are now told, according to the Press, that the doves have won. The Shadow Chancellor is a strange looking dove. The Conservative Party has said that the borrowing requirement is too high. It now seems that if the Conservative Party reduced the basic rate by 1p and did something about the top rates of income tax and investment income, it might add only £½ billion to the borrowing requirement instead of some of the more extravagant propositions being bandied about of over £1 billion.
According to what I read, there are some right hon. and hon. Gentlemen on the Tory Front Benches, and even in the Shadow Cabinet, whose consciences

twinged a little at the prospect of adding £½ billion. They thought that that might be a little bit irresponsible. However, they thought that they would relieve their consciences by saying "We voted against the public expenditure White Paper. That is a sufficient offset." Few people would accept that voting against the public expenditure White Paper is a substitute for spelling out where the expenditure cuts would fall. Even if the Shadow Chancellor were to tell us exactly where he would cut public expenditure, that would not be enough to compensate for adding the £½ billion to the borrowing requirement. He knows that it would be wholly impracticable to make those cuts effective in 1978–79.
No doubt the Shadow Chancellor will spell out where he would make the cuts. He has told us in which areas he would cut public expenditure. He talked about £3 billion in industrial transfer payments. I would be interested to know how we could make the major elements in that sum effective in 1978–79. One of the biggest sums—£510 million—is for regional development grants. Does the right hon. and learned Gentleman seriously suggest that the Conservative Party would cut the regional development grants? Even if it did, is it suggested that those cuts would be effective in 1978–79? The answer is that even if the Conservative Party cut them from next week, most payments made in 1978–79 will be in respect of grants agreed previously.
Another of the big items is the £475 million for special employment measures. Even if it were the policy of the Opposition to remove those altogether—and they have not told us that it is—it would not be practicable to do it this year. Another of the large items is £340 million for training, including, TOPS and expenditure by industrial training boards. Is it suggested that even if the Tory Party were willing to reduce that sum, such a cut could be made effective and practicable in 1978–79? Nobody on the Opposition Front Bench is prepared to tell us that such a step is practicable. That is because they know that it is not. That is why the talk of adding to the borrowing requirement is irresponsible.
The hon. Member for Owestry (Mr. Biffen), according to a report in The Daily Telegraph, said that public


expenditure cuts were essential pre-condition for reductions in taxation. I see the hon. Gentleman nodding. He would not dispute that that is what he said. The Conservative Party could not do that in 1978–79. There is no way in which the Conservative Party can wriggle out of the charge of financial irresponsibility which, I believe rightly, is laid at its door. This is a point that is troubling many Conservative Members. They must be concerned, together with many former Conservative statesmen, who must look with anguish as their successors recklessly disregard the national interest, as they define it.

Mr. Nicholas Ridley: The Chief Secretary may have heard that the Liberal Party wishes to cut direct taxation and to increase indirect taxation, particularly on alcohol, tobacco and, possibly VAT. If all 13 Members of the Liberal Party were to prevail against the Government in the Division Lobby on the cuts in direct taxation, would the Government facilitate them by increasing indirect taxes in view of the very strong plea that the Chief Secretary has made to preserve the borrowing requirement intact?

Mr. Barnett: That is, not surprisingly, typically irresponsible of the hon. Gentleman. It is a hypothetical question whether we shall lose the vote. As the hon. Member for Cornwall, North (Mr. Pardoe) constantly tells me in the House, there are only 13 Members of the Liberal Party. They do not command a majority.
If there is a majority of responsible hon. Gentlemen opposite, I hope that that hypothetical question asked by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) will not arise, because I hope that there will be no question of carrying the kind of amendment that the hon. Gentleman had in mind.

Mr. Norman Tebbit: Will the right hon. Gentleman give us a hypothetical answer?

Mr. Barnett: I do not mind answering all kinds of questions from the hon. Gentleman, but I prefer not to answer hypothetical questions.
I should like to deal with some of the major reliefs proposed in the Bill. Throughout the Bill we have concentrated, whether on individuals or firms, on

giving relief to those with modest incomes. As to investment income, there are some people who do not have very large savings, who will be paying a 10 per cent., or, in some cases, a 15 per cent. surcharge on part of that investment income. It should be clear to the House that 91 per cent. of all taxpayers with investment income of any kind will not be paying the investment income surcharge after the relief provided in the Bill. Only 2 per cent. will be liable to pay 10 per cent. surcharge and 7 per cent. only will be liable to pay 15 per cent.
Pensioners over the age of 65 will need a capital sum of £30,000—taking the average of the gross building society interest rate—before they start paying investment income surcharge at the lowest rate of 10 per cent. Those who are not 65 years of age—taking the equivalent interest rate—will need a capital sum of £20,000. For the majority of people those are large sums of money. Even those with somewhat higher sums than that—I would not suggest that one could call them wealthy—would accept that we have ensured that those with modest savings will either not pay the investment income surcharge or will pay a very small amount. I hope that the House will accept and that fair-minded people will agree that
people who have retired and who are living off the income from their capital do have something to thank the Chancellor for.
I am obliged to the Financial Times for saying that that is its view, and I hope that the House will agree.

Mr. Anthony Nelson: The Chief Secretary said that £30,000 was a lot of money. Many of us would agree with that, but many people who owned a home valued at about £30,000, who have sold that house and occupied rented accommodation and rely on the income from the investment built up over a lifetime, cannot be regarded as wealthy people, because they have no other capital assets.

Mr. Barnett: The hon. Gentleman could not have been listening, because that is exactly what I said. I went on to say that people over the age of 65 with £30,000-worth of capital would not pay any investment surcharge. I am glad to have the hon. Gentleman's agreement.
Our profit-sharing proposals are set out in Clauses 41 to 48 of the Bill. We shall have ample opportunity to discuss those proposals in some detail during the odd hours that we shall be sitting in Committee. The purpose of these clauses and the schedule is to help all employees of a company, no matter how lowly paid they may be, and not just, as was frequently the case under past schemes, to help a small number of people, including directors, in a company.
The allocation of shares up to a maximum of £500 a year will not be liable to income tax at that stage. As a general rule, they will not be able to be sold within five years, with exceptions for where an employee dies or loses his job through injury, disability or redundancy. I shall return in a moment to the length of this locking-in period.
I have no wish to overstate the benefits that the scheme may achieve, but I hope that in the long run it will help to improve efficiency and productivity and, therefore, the effectiveness of the corporate sector as a whole. Few would doubt the need for such an improvement.
I want to make clear that while I see profit-sharing schemes as an important recognition of employee rights, I do not envisage that they will ever become a substitute for other forms of industrial participation. It is impossible to say what impact new profit-sharing schemes will have because we cannot know how many companies will take advantage of the new proposals.
However, in the context of the economy as a whole, at least for some time, such schemes cannot have more than a marginal impact. We know that existing schemes, without the benefit of the special tax reliefs in the Bill, affect only 500,000 employees—2 per cent. to 3 per cent. of the total work force. If, for the sake of argument, the number of employees covered in the next few years trebles or even quadruples and the average annual shareholding is about £250, the shares acquired under the scheme would represent less than one-tenth of the amount currently saved through pension funds and about 3 per cent. of the total saved by the personal sector each year, although one hopes that there will be a greater sense of participation among those in profit-sharing schemes.
To provide encouragement for growth in the long term, while not undermining stability in the short term, the legislation is designed so that companies will be free to maintain their cash flow by issuing new shares rather than using the allocated funds to buy up existing shares. A company's tax position will be the same whichever course it adopts.
It will be recognised, when all these factors are taken into consideration, particularly the need to create a genuine sense of participation, that a locking-in period of five years is reasonable. Such a time span would also help to avoid disturbance in the capital markets and, while I do not pretend that profit-sharing schemes will bring about immediate and dramatic changes in share ownership, I hope that they will make a contribution to a much-needed improvement in our general industrial performance.
I gather from the Opposition and the Order Paper that we may have an opportunity on the Floor of the House to discuss the possibility of tapering or indexation of capital gains tax. We decided against the complex schemes that would be involved in indexation and tapering and decided instead to help the small individual taxpayer again. We have done it to such good effect that few individual investors will end up paying much capital gains tax.
Our proposals will not only help the small investor but will provide much-needed simplification. The elderly who have to realise small sums of savings accumulated during their working lives will be specially helped. Exemptions for individuals whose gains do not exceed £1,000 a year will eliminate almost half the current 300,000 assessments. The cost will be limited to £15 million—compared with the cost of indexation, which would amount to £350 million. The marginal relief will enable us to repeal the complex and much misunderstood alternative basis of charge at a modest cost of £10 million in a full year.
The other major section of the Bill that I hope will help with our industrial performance is the relief being provided for small firms. Let me give an example of the sort that many hon. Members have, no doubt, had brought to their attention. It is certainly not untypical.
The managing director of a small manufacturing firm came to see me and


said that there was good demand for the firm's products and that he could increase output and take on more staff, but he did not think that it was worth the risk and he did not propose to do so. I asked him why and he said that the tax system meant that it was not worth it for himself or his firm. I pursued that line of questioning and said that if he increased his output as he said he could, his firm, which was a close company, would not have to pay dividends at all. Indeed, the high taxes that he talked about would be non-existent if he was expanding as he said he could. I told him that it was likely that there would be no necessity to pay dividends and that his tax liability would be very small.
Of course, he then changed his tack and said that he could not get much out of it personally. I pointed out some of the tax advantages available to a successful small family company, not least the substantial tax-free lump sums and large pensions that were possible—even before this Budget. I pointed out the lifelong advantages that were available, especially to the self-employed, which he had apparently not heard about.
I was, of course, simply quoting from a full-page advertisement in the Sunday Telegraph of 16th April. It was headed:
If you are self-employed, a pension plan offers you lifelong advantages.
The advertisement said:
From the moment you take out
—let us call it an X pension plan; we do not want to give them an advertisement when the House is being broadcast—
your contributions qualify for tax relief at the highest rate of pay.
You can also vary your contributions each year which gives you the flexibility the self-employed need.
While you are still working your investment grows completely free of capital gains or income tax.
And when you retire you will receive a large tax-free lump sum and an income for the rest of your life.
That is what is available to that sort of gentleman and it is information that is not supplied by Conservative Members when they receive the sort of complaints to which I have referred.

Mr. Kenneth Baker: The right hon. Gentleman is talking about rewards for business. May I ask

him a question that was asked of one of his colleagues earlier by my hon. Friend the Member for Oswestry (Mr. Biffen) about the Government's intention on dividend control? We did not have a clear answer earlier.
Is it the Government's intention, when the powers of dividend control expire in July this year, to bring in substantive legislation to continue dividend control? The right hon. Gentleman will appreciate that, as a result of a Left-wing amendment two years ago, the powers expire in July and a Bill, and not just an order, is required. What are the Government's intentions in this matter?

Mr. Barnett: My intention is to continue speaking about small firms, which are what I was talking about. There is no problem over dividends in the case of an expanding small firm—whether the firm wants to pay dividends or not. My right hon. Friend the Minister of State dealt with this matter very well at Question Time and I advise the hon. Member for St. Marylebone (Mr. Baker) to reread the answer in Hansard.
When people are told that income tax and corporation tax are not the excessive burdens for small firms in general that we are led to believe, the complaint naturally switches to capital taxation and we are told, as the hon. Member for Blaby (Mr. Lawson) told us in his Budget speech, that we have a
crippling total burden of capital taxation".
When the hon. Gentleman talks like that, he exposes his own crippling ignorance of the subject, if he does not mind my saying so. Even if he does mind, I shall say it. The hon. Gentleman went on to talk about the
crippling interaction of capital transfer tax and capital gains tax".—[Official Report, 17th April 1978; Vol. 948, c. 49–50.]
One thing about the hon. Gentleman is that when he gets hold of one word, he sticks to it. He has a sort of obsession with words. He even had an obsession, almost to the extent of monomania, with me. He called me Sancho Panza five times. If it gives him relief from whatever he is suffering, he is welcome to it. I do not mind. I am happy to oblige the hon. Member.

Mr. Nigel Lawson: The Chief Secretary must learn to be a little less sensitive. If he thinks that the burden


of capital taxation is not a heavy one, will he tell us which of our major competitors in Europe has a heavier burden of capital taxation than we do?

Mr. Barnett: It is funny that the hon. Member should ask that, because I am about to give some facts and figures about this. I do not think that the hon. Member would do very well on the Government Benches. He would do better to stay where he is. When it comes to sensitivity—and I notice that he is looking very grim now—I have never yet called him a name. However, he calls me names and then, when I say that if it is his pleasure to do so he is welcome to do it, he accuses me of being sensitive. But I do not mind. In the past four years, during the passage of many Finance Bills, I have been called many names, but never before the same name five times in one speech. However, obviously it gives the hon. Member pleasure, and it is my purpose in life to give him pleasure. That is what life is all about.
I want to indicate from some of the facts about capital taxation why I talk about the crippling ignorance of the hon. Member for Blaby, and I see another Member of the Gang of Four laughing with him, so perhaps I can apply that epithet to him as well.
I take the simple case of a small business worth, say, £200,000, all the shares being owned by one man. In March 1974, under estate duty, if the owner of that firm died and left it to his widow, even assuming that the business qualified for two-thirds estate duty relief, which is quite generous by the standards applying at that time, the estate duty was £60,811. Under capital transfer tax, the widow pays nothing. If that business were left to the man's son and again qualified for two-thirds business relief, which, as I say, was generous at that time, the estate duty would have been £69,825. Under capital transfer tax, with the 30 per cent. business relief before this Finance Bill, it would have been £49,250 and, with the 50 per cent. relief £23,750.
The hon. Member for Blaby talks about the crippling interaction of capital taxation when in March 1974 there was both estate duty at higher rates and capital gains tax. But he says that it is crippling now. I am not sure whom it is crippling.

The trouble is that the hon. Member for Blaby does not understand the problem.
I know what the situation was under estate duty. The sophisticated, the well-advised and the wealthy were able to avoid it. I used to advise about it. It was a very interesting and useful experience. But we are always told that small business men were too busy to be bothered with seeking to avoid capital taxation in this way, and the Opposition instead have sought constantly to mislead small business men for years.
The Shadow Chancellor was at it again recently when he took part in a very interesting radio programme called "The Jimmy Young Show" and said:
If you're running a business, you begin making profits and you very quickly begin paying tax on your own income at 83p in the pound.
The kindest comment about that statement is that it was made in total ignorance. In practice, it is dangerous mischief, and it is totally untrue. It does serious damage to individuals and to the national interest.

Mr. J. Enoch Powell: Reverting to the Chief Secretary's period as an adviser on tax avoidance, will he say whether he was able to give retrospective advice on tax avoidance?

Mr. Barnett: The right hon. Member is getting a bit sensitive now. In Committee upstairs we shall come to the retrospective tax avoidance legislation which is contained in the Bill, and I welcome the prospect of having the right hon. Member for Down, South (Mr. Powell) with us then. I know that if I can persuade the right hon. Gentleman, I shall know that I am doing very well, and I hope to be able to persuade even him when I take up his question.
If we do not achieve what the Bill sets out to do, there will be people using the tax system to benefit a comparatively small number of people for the foreseeable future. They will build up an industry to help a few people with very large sums of money at the expense of other taxpayers. I hope that the House will treat that problem seriously, as I know the right hon. Member for Down, South will, and I look forward to coming to that topic in due course during the passage of the Bill.

Mr. Tebbit: rose—

Mr. Barnett: No, I shall not give way to the hon. Member. I know that he advises the Leader of the Opposition and that he is not doing very well at it, but I do not think that the Shadow Chancellor needs any help from him.
I was talking about the problem of small firms and the mischievous ignorance of the Opposition Front Bench, especially of the Shadow Chancellor. My advice to small business men would be to ignore what the Opposition tell them about the crippling burden of taxation and to seek out the facts. Under this Bill they are provided with new and generous reliefs, and they will find that every incentive exists to expand to the benefit of them, their firms and the country. I hope that from now on even the Opposition Front Bench will stop misleading them in this respect.

Mr. Tebbit: The Chief Secretary could help us enormously over this business of retroactivity and the tax avoidance schemes which he deplores by saying whether, either in the past or in the future, in his role as a tax avoidance expert he advised or would advise his clients that they should not take advantage of such schemes because they are immoral, unnatural or harmful to the national interest or even to those people about whom he keeps talking so self-consciously, the small business men.

Mr. Barnett: I can give the hon. Member a straight answer. I would not advise anyone to use these schemes. Indeed, I hope to persuade the House to legislate to ensure that it will not be possible in the future for those industries to continue. I cannot be straighter than that with the House, and it may be that on another occasion the hon. Member for Chingford (Mr. Tebbit) will address the question to his own Front Bench, when I hope that he will get the same answer.
What we have done in this Finance Bill for small firms applies equally to the benefits that we have provided in the Bill to most taxpayers. Most people with modest incomes will benefit from the Bill.
I said at the outset that that was what we had done. We have given the largest percentage benefit, rightly in my view—though the Opposition consider that we have spread it too thin—to the low and average paid. I doubt whether the average

taxpayer would have preferred us to do it the way that the Opposition apparently prefer, judging from the figures which I gave in my opening remarks.
I believe that what we have done in this Bill and in the Budget generally is to help the majority of people. We have sought to help those with modest incomes, and we have given quite a bit of relief to those with bigger incomes as well. We have given that help in this Finance Bill and, therefore, I commend it to the House.

4.29 p.m.

Sir Geoffrey Howe: To have to sit and listen to a lecture on irresponsibility from the Chief Secretary, of all people, is an experience that we could all well be spared. He has held his distinguished office for a number of years now, but he capped his own record for irresponsibility when we were debating the Budget only a couple of weeks ago. When the ink was still not dry on the print of the Chancellor's speech, and the nation was beginning to absorb what had just been uttered, the Chief Secretary, at that Dispatch Box, began talking about another Budget coming within weeks. I do not know what kind of animal qualities the Chief Secretary reckons to be enjoying in that respect—the chirpy disregard of responsibility—but the whole record of the present Government in relation to responsibility has been of the same quality.
If we cast our minds back, for example, to the decision by the Chancellor in the summer of 1974 to come to the House in July and, with a view to influencing the outcome of the next election, with a view to influencing the retail price index, then announcing a reduction in value added tax of 2 per cent.—some of my hon. Friends voted against that—with a view to securing his re-election never mind what happened to the economy, and if we recollect the experience of the present Government in presiding, during the 12 months that followed that, over a dramatic explosion of public spending and public wages, we realise that we need no lectures from the Chief Secretary about responsibility and irresponsibility.
The Chief Secretary also sought to imply that for this House even to address itself to the shape of the Budget, even


to dare to lay a finger upon the balance of the Budget upon any aspect of the taxes, was in itself irresponsible. That is to speak as though it came down like a series of Mosaic tablets which we touched at our peril.
Let me remind the Chief Secretary that any Government exist, and the present Government survive, only upon the authority of this House. Government impose taxes, change the burden of taxes or increase taxes only by the authority of this House. If that is true of any Government, it is even more true of the present Government, now standing in a minority in face of all the other parties, having lost an almost endless series of by-elections to lose the majority that they once held.
So Parliament not only has the right but it has the duty to scrutinise this Finance Bill, to propose changes in it, and to refuse to approve certain aspects of it. The Government, if they are unable to repel those changes proposed by the House, then have a duty to respond to what is done. The Government should look a little at their own responsibilities. They have a duty to respond to the changes made by this House either, as we would urge, by reducing public spending—I shall return to that in a moment—or by changing the proposals they put before the House for the tax system as a whole.
If the Government are unable or unwilling to do that, they have one perfectly clear option open to them. They can invite the electorate either to renew their authority or to replace them with a Government with fresh authority.
How do we approach the Bill on that basis? Her Majesty's Opposition have not only the right but the duty to propose changes in the Finance Bill contents if we judge that to be correct. It is only proposals that are tabled or supported by the Conservative Party that have any practical importance in the debates that will take place. The minority parties will no doubt consider them as carefully as they should—the 11 Scottish National Party Members, the 12 Members from Ulster, the three Members of the Welsh National Party, and the 13 other Members from fringes around the country who march under the banner of the Liberal Party. If all those come together and

support the official Opposition and carry changes in the Finance Bill, it becomes the duty of the Government to respond to those changes.
Of course, we, in contrast to some hon. Members, in the proposals that we put forward must take account of the reality that we could very shortly be called upon to form the Government of the country, and we must make proposals that have regard to that reality. We shall not, therefore, engage in any kind of Dutch auction with the hon. Member for Cornwall, North (Mr. Pardoe). He may have his own interests for advancing proposals which go beyond those which we regard as wise.
The hon. Member for Cornwall, North and the Chief Secretary apparently conduct a dialogue together. I have some sympathy with the Chief Secretary, because he seems to remain mute in relation to these exchanges, but no sooner does the hon. Member for Cornwall, North emerge from his office than all sorts of versions are blurted out to the Press. The Chief Secretary must look back with envy to the days when he had only Richard Crossman to contend with in his contemporary diaries. But I can well understand the hon. Member for Cornwall, North and, indeed, even the Chief Secretary, because as their divorce draws closer, so they must compete with increasing frenzy for such electoral alimony as is to be gained.
We do not approach the matter in that way. We shall put forward our own proposals, and each party in the rest of the House will have to form its view about them. Nor is it possible for us to rewrite this Budget, however much we may like to do so. It is a Labour Budget, put forward by a Labour Government, and it is not possible for us, within the limits that I have described, to do more than make modest changes in it.
The Chief Secretary dwelt with some relish—which was surprising, having regard to his antecedents—on the quality of the retrospective proposals contained in the Finance Bill. Although I understand the difficulties to which he is addressing himself, I must warn him that to march down the road of introducing retrospective legislation is to make a very fundamental and important change of principle, which we shall challenge and scrutinise very closely.
It is all very well talking about taxpayers "using the tax system", as the Chief Secretary did. But what is this to mean if they are doing no more than relying upon the law of the land as it is enacted on the statute book and as it is, in some of these cases, still being tested through the courts?
When the Chief Secretary—as I imagine he did and, indeed, he confessed as much; the confessions of a previously practising tax avoidance adviser—[HON. MEMBERS: "No."] Yes. If the Chief Secretary has no modesty about that, he is not merely a confessing tax avoidance adviser—

Mr. Joel Barnett: The right hon. and learned Gentleman's understanding of the tax system seems to be almost as bad as his understanding of accountants. Accountants do something more. I have never denied that I have advised on tax avoidance. But one does a little more than that as an accountant.

Sir G. Howe: I do not doubt that the Chief Secretary did a little more than that, but he is a self-confessed tax avoidance expert, and there is nothing to be ashamed of about that. But when he spoke about people "using the tax system", did he or did he not tell pepole to take advantage of the seven-year rule under estate duty? Of course he did. Was that "using the tax system" or being well advised on the state of the law as it was? When the right hon. Gentleman talks about his intention to stamp out "those schemes", which he talked about at large and in general, we must ask, which schemes? How grand are his intentions? How uncertain will the law be? Is it anything for which he hopes he can command a majority to reverse the law retrospectively?
This is a serious path down which to march and we shall challenge the Government on it, because it is dangerous to overturn this principle. Beyond that, we cannot, as I say, transform this Budget.

Mr. Ridley: Is my right hon. and learned Friend aware that the biggest form of tax avoidance is simply going away, outside the Chief Secretary's net, to foreign shores? Does he think that the Chief Secretary intends to stop that retrospectively, too?

Sir G. Howe: I am sure that it would not be beyond the Chief Secretary's ambitions.

Indeed, he is widely regarded as considering death to be nothing more than a loophole in the system that he seeks to impose.
However, it will not be possible for us to change this sow's ear of a Labour Budget into a silk purse. There is a widespread realisation that we need very substantial changes in the whole approach of our economic policy across a very wide front, a whole series of changes which we cannot expect from the present Government—to encourage the creation of wealth, to encourage the spreading of wealth and to encourage the wider ownership of wealth, and so to encourage the extension of job opportunities.
As my right hon. Friend the Member for Chipping Barnet (Mr. Maudling) has said many times, we need to do those things that will improve the performance of the supply side of the economy. That must involve making substantial reductions in taxes on income, on income from work and from savings, and on capital, going far further when the opportunity comes than it is possible to propose today. Of course it will involve being prepared to hold public expenditure steady. Of course it will involve being prepared to switch from taxes on income to taxes on spending. There is nothing novel about that. There is nothing shattering about the proposal that we should hold public spending steady and seek to reduce it where we can.
When he talks about public spending, the Chief Secretary tries to address himself to the argument in two contradictory ways at the same time. At one moment he says that the Opposition have not spelt out where they propose to cut and then in the next breath he says "But of course they have said that they will scrutinise the £3,000 million spending on trade, industry and employment, but they have not told us where and when they will do it."
The Chief Secretary knows perfectly well that it is possible, as he reduced public spending by £4,000 million in the two years since we first urged him to do it, to set out again on the same course. He knows perfectly well that it is sensible and responsible to propose switching the tax burden from taxes on income to taxes on spending, because his right hon. Friend the Financial Secretary said during Question Time earlier this afternoon that


the Chancellor himself had proposed that and advocated it on many occasions. That switch and those changes must take place.
The Chief Secretary referred to one or two changes in this Finance Bill which begin to move in the right direction. The proposals for the introduction of profit-sharing schemes are a modest recognition of the damage done by this Government when they sought to stop in its tracks the 1973 save-as-you-earn scheme which we introduced. There is a long way further to go on that.
Similar changes, on which this Government have begun to embark in a repentant fashion, are necessary in the whole matter of small businesses. It is remarkable to listen to the Chief Secretary discussing the wicked untruths that we tell about the taxation of small businesses, describing the Elysian fields in which small business men should now regard themselves as entitled to prance and enjoy themselves under the beneficent taxes introduced by this Government. But the right hon. Gentleman seems to forget that when we were discussing capital transfer tax in its original form in the Standing Committee in 1976 he said:
The fact is that the small business man does very well out of capital transfer tax".[Official Report, Standing Committee E, 24th June 1976; c. 1233.]
In the past six months the land has been filled with speeches by the Chancellor of the Duchy of Lancaster saying how dreadfully the small business man does under the same tax. The Chancellor of the Duchy has been making speech after speech to small business men saying "I have discovered these terrible things, and I shall give you a chance to change these taxes that the Chief Secretary introduced only two years ago." So the House will not listen very attentively to the Chief Secretary when he describes the blissful condition of small businesses.
The right hon. Gentleman knows perfectly well that the total burden of taxation on the small business man is substantial. If he does not, he does not deserve to hold his present job. He cannot go to any gathering of small business men without recognising the extent to which they are oppressed—deeply oppressed, indeed, exposed to a crippling burden, in

the words used by my hon. Friend the Member for Blaby (Mr. Lawson).
These are the representations to which the Chancellor of the Duchy of Lancaster has been hastening to respond. The Chief Secretary may think that all this is over, but his right hon. Friend is still stalking the land saying "More good things are to come. I haven't finished yet with the dreadful taxes the Chief Secretary has imposed upon you." Both right hon. Gentlemen represent constituencies in Manchester. One would expect that there would be greater communion between them and that the Chief Secretary might have spoken to the Chancellor of the Duchy to find out the damage he was doing before he did it.
There are these major changes that must be made. We cannot make them all in this Bill in this House. Today, on this Bill, we can only propose to make a very modest start, to set out as an earnest of our intention when we come into government. I shall set out the main proposals that we shall lay before the House and indicate what their cost would be.
I make two preliminary points. Our first contention is that the changes that we propose should be and can be paid for by savings in public expenditure during the year that has just started. The Chief Secretary drew attention to the fact that the year was under way and said that this high spending public sector juggernaut was irreversible and unstoppable in relation to £67,000 million of public spending. I do not believe it.
If we look at the changes that have been taking place in public spending, we can see the reality. The cost of the proposals I shall lay before the House will be very modest in their first year of operation. The House knows very well that the first year cost of changes is much less than the full year cost. It should be perfectly easy for the Government to accept the consequences of changes in public spending.
Consider the sheer scale of public spending, Mr. Deputy Speaker—£67,000 million projected in the coming year. The increase in the coming year is £4,000 million, or 6 per cent. That is the increase in actual money terms.
The Chief Secretary came before the House time after time in the past two


years showing how eventually he was able to respond to our advice to save £4,000 million in two years. That is what he did. It having been saved, exactly the same amount is now to be cast away by an expansion in public expenditure. We voted against that. We are entitled to rely on that. We voted against the public expenditure White Paper, because we said that the increase should not be happening. Unhappily, the Liberals voted for the increase that is now taking place.
The scale of the proposals for reducing taxation should be seen in perspective. If £100 million is cut off public spending in order to reduce taxes, that represents one-fortieth of the increase on which the Government have embarked in the current year, or one-seventh of 1 per cent. of total public spending. Is it really to be believed that the Chief Secretary, with all his experience of cutting back public spending, cannot make a change of that kind in the 11 months that lie ahead?
If we went as far as £500 million of tax cuts, that would involve cutting the increased spending plans for the current year by one-eighth. It would involve saving three-quarters of 1p in the pound in the totality of public spending. Can anyone believe that it is impossible for this Government to save three-quarters of 1p in the pound in the year that lies ahead?

Mr. Joel Barnett: I am sure that if the right hon. and learned Gentleman is now going to show us how it is possible—

Sir G. Howe: Indeed, I shall.

Mr. Barnett: —he will spell out where the £500 million can be cut and, what is more, how it can be cut in 1978–79. I look forward to hearing that.

Sir G. Howe: I simply address myself to the general proposition. It is absurd to have the Chief Secretary advancing in a state of helplessness, saying that he presides over £67,000 million of spending in the year ahead and that it is not possible for him to save three-quarters of 1p in each of those pounds.
Let us compare the position with that of any family in the country. Over the past four years every family have had to make far larger cuts in their own spending.

The living standards of the average family in Britain last year were 8p in the pound down on their living standards four years before. Families above the average had their living standards cut by 20p or 30p in the pound. If the average family can do that, they know that it can be done, and they cannot begin to understand a Government who refuse to contemplate savings on one-fiftieth of the scale.
I come to what we propose. First, we believe that the changes proposed by the Government in the investment income surcharge do not go far enough. We believe that there should be further reliefs in the investment income surcharge imposition on those with smaller incomes. The Government know that investment income of this kind is useful for the ownership and expansion of industry. Indeed, in the Budget debate the Chancellor of the Duchy was positively euphoric about it. I quite agree with what he said, which was:
in general it is better that there should be hundreds of thousands of shrewd investors bringing their brains and money to small business than a handful of civil servants presiding over a fund, however generous."—[Official Report, 17th April 1978; Vol. 948, c. 38.]
We agree. That is why we want to see further reductions in the burden of investment income surcharge. We want to see reliefs for all those who have saved their money in the past and who do not have the advantage of retirement on inflation-proof pensions, and who have the disadvantage of retiring to live on the proceeds of their savings income. These people have had to pay up to 98p in the pound. Even the elderly have been paying at 49p in the pound on incomes of little more than £40 a week.
We propose that the threshold for the payment for investment income surcharge should be raised to £2,000 for the generality of taxpayers, that for those over the age of 65 it should be raised to £3,000, and that the band over which it is payable at 10 per cent., rather than 15 per cent., should be £500 in each case.
The cost of that change in this year is no more than £5 million. The cost in a full year would, of course, be more than that. I do not know how it could be said that it is not possible to make that change, at a cost of £5 million. The Financial Secretary looks mystified. The


changes already proposed by the Government would cost £31 million in a full year, and £3 million in the first year. The changes that I propose are of the same scale. The first year cost would be £5 million, which is rather less—if we are looking for public expenditure savings—than is being given in aid and comfort by the Government to the forces and countrymen of the so-called front-line Presidents in Southern Rhodesia. Surely that is a change that we could afford to make. It is a modest cut for a modest proposal of some significance. The Chief Secretary may say "Tut, tut" and shake his head, but it is a sensible change.
The second change would be in the rate at which higher rate income tax begins to be paid. The higher rate of 40p, or 40 per cent., in the pound, currently starts at £7,000 of taxable earnings, which is one and a half times the average earnings in the country. This is at the very level, as has been pointed out by the British Institute of Management and by the CBI, of the skilled workers and middle management to whom the Prime Minister and almost every member of the Government are glad to pay tribute when they go out to dine with them, but for whom they are prepared to do very little when it comes to the point.
The Prime Minister, speaking at the annual dinner of the British Institute of Management, said:
Without their efforts we will not succeed in the central task before this country—to regenerate British industry and to reverse the relative decline in our industial performance of the last 30 years.
Earlier he said:
They will be the men who will have to sell the case for higher productivity, for better working methods arnd for more output.
I well understand the comment made by the CBI in a letter it wrote to the Chancellor of the Exchequer yesterday:
If you had been seeking a way to demoralise the skilled workers and managers of British business you could not have found a better way than a Budget which delivered so little for these people after public statements by Ministers had led them to expect some truly tangible recognition of their importance to industrial performance. Your message to this sector of the work force seems now to be 'you don't really matter'".
That is a fair comment.
We propose that the starting point should be raised from £7,000 to £8,000,

and the cost of that proposal in the current year would be £50 million. In other words, people should be able to enjoy a further £20 a week before they move into the position of being surtax payers. Incidentally, this is exactly the change that we proposed last year—that that threshold should be moved to £8,000. Be it noted that last year the Liberal Party voted with the Government against such a change.
The third proposal is that the higher rates of income tax should be changed in their structure so as to arrive at a top level of income tax payable on earned income of 70p in the pound at the figure of £21,000 a year. The proposals are that the rate should be at 40 per cent. in that pound between £8,000 and £10,000; at 50 per cent. in the pound between £10,000 and £14,000; at 60 per cent. in the pound between £14,000 and £21,000; and at the top rate of 70p in the pound above £21,000 a year.
The cost of that change this year would be £130 million. I invite the House to consider the fact that the cost of municipalisation in this year's public spending programme—the public acquisition of houses from the private sector—runs at £92 million a year. We could well save that. But the cost of selective assistance to industry in the current year is running at £166 million. If we saved one quarter of that we should have enough money with which to find the £130 million to get back to sensible rates of tax on higher incomes.
Since the Government came to office, the growth in the number of people employed by the Inland Revenue and Customs and Excise has been 20,000. If we were to remove that excess growth in tax collectors which has arisen from the complexity of the changes introduced by the Government, we should in that change alone have more than enough to pay for the reduction in higher rate taxes that I have proposed. Surely that would be a sensible change to make.
Does anyone in the country really doubt the folly of continuing to impose these stratospheric rates of taxation on those with high incomes? Does anyone who follows as a child the world of pop stars and entertainers doubt the extent to which talent drains out of the country because of the high rates of tax? That is quite apart from talent of the kind


employed by managers, technologists, scientists and entrepreneurs.
We have highly qualified people. They are qualified additionally by having the most exportable language in the world, so that they are more likely than others to be taken away by better offers of employment from other countries. I wonder where members of the Government go when they go out of town and around the country. Do they ever meet a company which is not complaining to them directly and personally of the loss, recent or imminent, of one of its senior executives because of high taxation? Every company that I visit has that complaint to make. Do the members of the Government never come across companies saying that they wish they could get back to this country people who left to get experience and who are now unwilling to return because of the high rates of taxation they would face?
When the Government complain, as no doubt they will, about the effect of reducing the high taxes on higher incomes, they will no doubt draw attention to the fact that a director of one of the Shell companies is paid £200,000 a year because he is an American and is said to need that money to get him to come to this country. In order to achieve anything like comparable post-tax levels, he has to be paid at that high rate, which is twice the amount paid to his counterparts in this country.
These are the reasons that companies such as British Leyland lose managerial talent and cannot bring it back. It is for that reason that we regard the third proposed change as of such importance.
The fourth proposed change is to the basic rate of income tax. Of course, there is a case to be made for further improvements in the thresholds. Some change was made in that last year, but it was not much, because the House may have seen that after this Budget there will be 900,000 more people paying income tax than there were before the Budget. After this Budget there will be 2,250,000 more people paying income tax than in 1973–4. There is a lot to be done, therefore, on the thresholds.
We believe that the change in the basic rate is important among the quartet of measures that I am proposing, and the House should know how the cost of that

has also been altered. Because of the introduction of the reduced rate band, the cost of knocking 1p off the basic rate is now much less than it was. It used to be about £500 million or £600 million to knock 1p off the basic rate. Now, because of the reduced rate band, with 34 per cent. payable on a much smaller chunk of income, the full-year cost of changing the basic rate by 1p would be £370 million.
This is clearly an area in which there is a major need for change. When we left office, the combined standard rate of impost on earnings stood at 30p basic rate and 5p national insurance contribution, making altogether 35p in the pound. It now stands, for most pounds earned by most people, at 34p tax in the pound and 6½p national insurance contribution. The combined figure has therefore risen from 35p in the pound to 40½p in the pound.

Mr. John Pardoe: Will the right hon. and learned Gentleman comment on the fact that it would be perfectly possible to reduce the standard rate of income tax back to what it was when his party was last in Government if the Government simply raised the present borrowing requirement to the same proportion of the gross national product that it was when he left office? Does he think that that would be a satisfactory way to pay for the reduction in income tax? The figure that he was looking for was 6·1 per cent. in 1973, and it is now about 5·25 per cent.

Sir G. Howe: Oddly enough, that was not the figure that I was looking for. I have become rather tired of receiving lectures from the hon. Gentleman about the size of the borrowing requirement and about monetary confidence. I took the oportunity of looking at what the hon. Gentleman said in the debate on the 1973 Budget, which led to the borrowing requirement of which he complained. He said:
I believe that it is an over-cautious Budget. … The Budget was introduced in a situation in which business confidence was returning after a period of almost total collapse over a great many years. The essential need of the Budget was to bolster that confidence. I fear that the Chancellor is already giving signs that he may yield to the conservative and over-cautious voices behind him."—[Official Report, 12th March 1973; Vol. 852, c. 953.]


If that is the foundation on which the hon. Gentleman stood then, I shall take no lectures from him now. That is why we are not proposing the kind of increase in the borrowing requirement which the hon. Gentleman is proposing.
We are proposing changes which we think are managable. We see that the actual rate of tax and national insurance payable this year is ¾p more than it was last year. We see the fact that some single people, even taking account of every switch of benefits, are actually worse off in money terms. We see the reality that the average family's pay packet—I choose the words carefully—is increased by only 14p. The Chief Secretary nods his head wisely.
We are not opposed to the introduction of child benefits. What we criticise is introducing them in a tax environment which leaves so little benefit—in some cases disadvantage—for the wage earner in his pay packet. We support the idea of moving to child benefits as a means of bridging the poverty trap and bridging the "why work?" problem, but it ought to be accompanied by reductions in the rate of tax on the pay packet. That is why we complain as we do.
If all the normal taxpayers now look at the proportion of their pay packet going in tax and national insurance, they will find that it has actually risen this year compared with last year. For the average family with two children the percentage going in tax and national insurance last year was 24·4 per cent. This year it is 25 per cent. At twice the average the figure has risen from 30·4 per cent. to 30·8 per cent. There is a similar increase at three times the average.
That is why we believe it is right to make this fourth change that I have proposed and to reduce the basic rate of income tax by 1p. Of course, these changes are limited in scope, because we are trying with limited room for manoeuvre to fillet some sense out of a Labour Budget, the borrowing requirement of which is already up against the limit. That is why it would not be right for Parliament to place upon a reluctant and intransigent Government any larger increase in their borrowing requirement.
We propose only the modest change of a reduction from 34 per cent. to 33 per

cent., the cost of which this year would be £300 million. That could readily be saved if the Government were to decide that the National Enterprise Board should not spend the £300 million which it asked the House to vote for it only about a fortnight ago. It has nothing to do with British Leyland. It is money which could well be saved.
The cost this year of 1p off the basic rate of tax would be £300 million. If the higher rate threshold were raised to £8,000, the cost this year would be £50 million. Changes in investment income surcharge would cost £5 million this year. Reductions in the higher rates of tax would cost £130 million this year. The total cost this year of the measures that I am proposing would be £485 million—less than ¾p in the pound over the whole of the £67,000 million which the Government are spending. If the Government decline even to do that, then, as we have said many times before, by switching away from the multi-rate VAT nonsense to a flat rate of 10 per cent., they could gather in a full year far more than that—£700 million. If they did it tomorrow they could gather £600 million by using the regulator as they could.

Mr. Douglas Jay: Has not the right hon. and learned Gentleman left out one part of the equation, which is the increases in Government expenditure which the Conservative Party today recommended at Question Time? Has the right hon. and learned Gentleman, for instance, costed the increase in defence pay proposals which were made by the Conservative Party last week?

Sir G. Howe: The right hon. Gentleman will remember that we had a debate on the public expenditure White Paper, which we went through quite extensively. If the right hon. Gentleman will read again the reports of it he will find clearly identified the areas in which we argued for cuts. Indeed, it is high time that the Labour Party stopped trying to ride both horses at the same time. On the one hand, it says "You have not told us where you are going to cut" and, on the other, it says "Oh, you have told us. Isn't it dreadful?"

Mr. Joel Barnett: The right hon. and learned Gentleman promised to tell us


where he would find the public expenditure savings. He has mentioned one item—the National Enterprise Board—the bulk of whose money goes to Rolls-Royce and British Leyland. Is he now saying that he would not provide that money?

Sir G. Howe: The Chief Secretary was talking so busily to his hon. Friends that he did not hear what I said. I said that 1p off the basic rate would cost £300 million this year. In the debate a few weeks ago, we voted against the proposed increase in funds for the National Enterprise Board. That had nothing whatever to do with British Leyland. It was expressely stated not to be related to British Leyland. The amount of money was £300 million.
The cost of raising the higher rate threshold from £7,000 to £8,000 would cost £50 million. That could be saved by discontinuing the Community Land Act, which cost £64 million. The money could be far more sensibly spent in the way that I have proposed than on the Community Land Act. The £5 million cost of investment income surcharge could readily be obtained by withholding the giving of aid to front-line Presidents and so-called freedom fighters in Africa. That would be an equally sensible change.

Mr. Jay: rose—

Sir G. Howe: I am sorry. I am just going through the catalogue that I have outlined. The reductions in the higher rates, which would cost £130 million this year, could be saved—I do not know why the Chief Secretary was not listening—by ceasing to spend £92 million on the municipalisation programme and by cutting a quarter off the selective assistance, which amounts to £166 million. They are perfectly clear suggestions which the Government could carry through forthwith. If the Government continue to say that they cannot save ¾p in the pound out of £67,000 million, then they deserve to be criticised as severely as they will be.
Those are the proposals that we shall press upon the House. We find it very difficult to discover exactly where the Government think they are going or what their position is. They are approaching the question of changes in the tax system without any sense of direction or integrity.

On the one hand, we have hon. Members below the Gangway adopting a perfectly honourable view. They want to see taxes maintained at least as high as they are now. When the Budget was before the House they wanted to vote against any relaxation on the higher rates. That is one view. On the other hand, we have the Chancellor of the Duchy of Lancaster emerging, as he did on television the other day, looking forward confidently to a correction, now long overdue, in the rates on higher taxes. Where are the Government going? We do not know what the true purpose of the Labour Party is.
The Chief Secretary is as adept as any Labour Member at making speeches exposing a bleeding heart about the burden of taxes on management and the higher paid. The Prime Minister does it from time to time. The Chancellor of the Exchequer himself has said times without number that he thinks the rates of income tax are too high at every level of earnings, from the poorest paid to the highest paid. He said that he agrees:
that the level of direct taxation does discourage enterprise".
What do the Government believe? Does the Labour Party want to maintain a high tax system for ever—as hon. Members below the Gangway do—or does it want to make changes in the high taxes that it has introduced? I do not know what its position is.
If we propose, as we do, changes of this kind and reductions in these absurdly high rates of tax, the Chief Secretray will no doubt reserve the right to calculate how generous they are and how unfair they are by giving more at one end than the other. Yet, when he goes around the country and dines in board rooms and with people in the City—so we hear—the Chancellor is giving the impression that he would love nothing more than to be able to reduce these oppresively high rates of personal taxation.
The Government have not made up their mind. On the one hand, they wish to be beloved in Lombard Street and, on the other, they want to be lionised by the Tribune Group. They are totally divided not merely amongst themselves but in their own mind. My anxiety is that the Chancellor may have blurted out the truth—in so far as he still knows what the truth is about his own thoughts


—in the Burnley Star on 13th March. He was speaking not in the Mansion House, or seeking to make a good impression on the City or on higher management, but in some Labour club in that part of the world. He said:
I will offer you proper Socialism when we get a decent majority in the House of Commons to enable us to do it.
What is "proper Socialism"? Is it the desire he expresses in some parts of the country to lighten the load on middle management, or is it to clamp the shackles of Socialism, as it is understood below the Gangway? We do not know. The Government do not know. The Government have ceased believing in themselves or believing in each other. The country has long since ceased to believe in them, and it is high time for them to go.

5.12 p.m.

Mr. Donald Dewar: I have had a great deal of gratuitous advice on how I should start this contribution today. The most popular formula has been: "As I was saying when I was rudely interrupted by the events of 18th June 1970". I rejected that because I cannot remember what I was saying at the time of the 1970 Election.
I am very glad to be back in the House of Commons, and I consider myself very fortunate indeed. I should like to put on the record my thanks to the many hundreds of ordinary Labour Party supporters in the West of Scotland and throughout Scotland who worked extremely hard to get a significant victory at Garscadden.
This is not a maiden speech—that is a technical state to which I cannot aspire. Perhaps later I shall make more controversial remarks, but there are also some maiden speech conventions which I wish to follow and which I do not consider in any sense an empty ritual.
I wish to pay tribute to my predecessor, Willie Small. He was in the House since 1959. I knew him very well, and I have always valued his advice and judgment. He did not deliberately try to capture the headlines and he did not try to turn every individual victory on behalf of a constituent into a public triumph. He had a record of service and devotion

to duty that was second to none. On the night before he died he was pressing in this building the case of a constituent on Scottish Office Ministers. That was extremely typical of the dedicated effort that he put in over the years. He was a very loyal friend, a man of great common sense and essential decency. I remember him with affection, just as I believe many people in Garscadden and in this House will remember him, too.
I left this House in 1970 as the Member for South Aberdeen. I return strangely translated now to Garscadden. I have happy memories of South Aberdeen. My one complaint is that the constituency has shown a stubborn reluctance to discard the Conservative colours since 1970.
Glasgow is my home. I was born and bred there. I am proud to be the representative in this House for Garscadden. It is not an area which has scenery or architecture about which one can wax lyrical, but since I have become associated with the constituency I have been enormously impressed by its social cohesion and by the willingness to face up to the real difficulties that do exist.
In these by-election campaigns, TV journalists particularly, and sometimes newspaper journalists as well, in the search for local colour let their enthusiasm overcome the truth, and they tend to dwell on the darker areas of social problems. There are an enormous number of good things coming out of Garscadden—there is a basis upon which we can build successfully in the years ahead.
It is a constituency in the very heartland of Western Scotland. To be involved in Garscadden is to be involved in the whole area. If one lives in Drumchapel, Knightswood, Blairdardie, Yoker or Temple, if one works in the Yarrow Shipyards, the Goodyear tyre factory, at Albion trucks or any other factory in the travel-to-work area of my constituency, if one's problems are education, housing or employment, one is involved in the essential Scottish controversy.
Indeed, in a real sense the issue of the by-election was the whole future of our relations with our neighbours, and our perception of ourself. The result in Garscadden was significant, but I believe that it represents the beginning, not the end of the argument. The majority of


my constituents rejected heartily the proposition that in some way we can solve our problems by cutting ourselves off from the rest of the United Kingdom. They rejected the Scottish National Party slogan that we should shed what they see as the dead weight of England.
My constituents believe that we must have a common approach to common problems. What Garscadden is looking for is a policy not of fragmentation—because that is what separatism and independence means—but of unity in the attack on poverty and injustice in society. They want coherent political priorities—which would be as relevant on Tyne-side and Merseyside, as certainly on Clydeside. They do not want romantic slogans, however slickly these may be packaged. I emphasise once again that I am proud to represent Garscadden—very deeply proud.
I turn to the Finance Bill—the legislation that embodies the Budget Statement, which, incidentally, was delivered two days before polling day at Garscadden. I welcomed it then, and there is no difficulty in understanding why I welcomed it. On maturer reflection I welcome it again today.
I did not expect the Chancellor to construct his Budget to win Garscadden for me, but I looked to it for evidence of the economic progress that this Government have made and as evidence that we are standing by the priorities that the Labour Party wants to see uppermost in the mind of a Labour Government. I believe there is such evidence.
I am not qualified to plunge into the technical niceties of capital transfer tax, the effect of revaluations on gaming licences in Scotland, or tax status for North Sea divers, fascinating though that is, and I do not intend to do so. These are arcane mysteries and I shall resist being drawn into them.
However, I shall say a few words about the central argument of this Budget—that of personal taxation, and whether the Government have got right the reductions they have proposed, or whether these should be pushed a little further. I thought that the Opposition spokesman, the right hon, and learned Member for Surrey, East (Sir G. Howe) seemed to be working on not-too-coherent principles. All he seemed to say was that anything

that the Government have done the Opposition would do just that little bit better. To me that smacks of opportunism. Perhaps I am being unfair, but it is up to others to judge. I am not surprised in the slightest that the Liberals and Tories are unhappy with the Budget proposals. That is the nature of the beast. Opposition breeds ingratitude.
I feel very strongly that the Budget measures will be widely welcomed far beyond the partisan Benches of both sides of this House. They will be welcomed widely in Garscadden, where people will welcome the increased personal allowances and the proposed adjustments to the upper bands of taxation. We may argue about the minutiae of these proposals but certainly support the introduction of the new lower band of 25 per cent. on the first £750 of income. This will help some to escape from the poverty trap, and it will do something to offset the effects of fiscal drag. It will help people in every constituency up and down the land.
There are two issues by which people will judge this Budget during the next year or 18 months. These are unemployment and the impact of inflation. Unemployment was probably the dominant issue in the Garscadden by-election, apart from the question of separation from the rest of the United Kingdom. Coming from a constituency that is heavily dependent on shipbuilding, I believe that it would be wrong not to recognise the remarkable and valuable job that has been done by the Government over the last year or two. I believe that we shall see a continuing improvement in the unemployment situation. Without the Aircraft and Shipbuilding Industries Bill and Government intervention, parts of my constituency and large parts of Clydeside would be literally devastated areas.
When we bear in mind the continuing trends that are now beginning to emerge, I believe that we shall see a considerable improvement. I hope that we shall see this over the next year or so. It is something that I and many other hon. Members will be watching for carefully.
The Budget will certainly help. If there is an injection of £2,500 million into the economy, it is obvious that demand is being given a considerable push. It is inevitable that such an injection and push


will have its effect on jobs. That is something that we all welcome.
However, I have some worries about the effect on inflation. It may be that I shall get reassurance during the next few months. It is inevitable that if we pump £2,500 million into the economy there will be a considerable effect on inflationary pressures. We have all read the Red Book—even I managed to read it shortly after polling day—and we find that it states:
real disposable incomes … can be expected to show a very marked rise … up to the middle quarters of 1978, followed by a much more modest rise thereafter.
I wonder a wee bit about that. If we assume that towards the end of the year there will be a substantial and welcome increase in pensions, and if we consider, rightly, given the social priorities, that the majority of the tax changes will benefit the lower paid, we are dealing with two categories that are not likely to be plunging heavily into the gilt-edged market or into any other form of competitive saving. I am pointing out that most of the money will go into consumer spending. That will have a considerable and helpful impact on employment, but an impact that we shall have to watch closely when it comes to inflation. That tendency will be compounded by the fact that the pound has fallen to some extent. That will have an impact on import prices.
I know that the Government have talked a good deal—there has also been a good deal of speculation—about the wage settlement in the coming year. In the Red Book we find the bland statement:
The forecasts assume that average pay increases in the year beginning … 1978 are about half the average for the current pay round.
Probably the best way of putting my point is to say "We shall see". However, I am perfectly clear that those such as myself, who will be campaigning in Scotland during the regional elections and subsesquent by-elections, must try to persuade electors that at the end of the day there is for them a very strong case in terms of self-interest for supporting a Government that is cutting taxes and engineering a situation in which there is a real rise in living standards. An essential part of the argument, however, is that the electorate as well as the Government should press for moderation in

terms of wage settlements and the pay round. If earnings are rising at 14 per cent., or perhaps higher, as I suspect, and if inflation is falling to 9 per cent., and there are real concessions and cuts in the Budget, we have a situation that will provide, for a substantial and significant rise in living standards in the months ahead.
It is important that we get that point home. It would be sad if we did not get it home. We must persuade those we meet on the shop floor and the public generally that there is a case for moderation. Without such moderation inflation could gather pace. At the end of the day the result would be unemployment on a scale that would be totally unacceptable on the Labour Benches or anywhere else.
I strongly approve of the tax strategy that is embodied in the Bill. However, I see it as part of a whole and not something that can be taken in isolation. When it is cheered through its various stages by Labour Members, they will also have a duty to accept the wider responsibilities and the arguments that are part of the social strategy. We must try to duck those and other much more difficult problems when we face our electorates and the people.
I do not like the alternatives to the strategy. It is not merely a matter of considering what we are doing. We must also consider what is offered us. With all respect to the right hon, and learned Member for Surrey, East, I was not reassured by his speech. If the alternative to the Government's strategy, combined with reasonable restraint on the wages and earnings front, is to be severe cuts in public expenditure, that is an alternative that will be totally unacceptable on the Government Benches. That is a message that will be echoed in the House by Labour Members and by many others throughout the country.
It is not possible to give with one hand, as the right hon, and learned Gentleman is seeking to do, and to take with the other. If we start forcing up VAT rates and having an effect on the retail price index, we are courting trouble and disaster. We could find ourselves in a situation in which our basic argument on incomes becomes totally unsaleable and we should be plunged into genuine instability, which none of us wants.
I do not favour the Conservative Party's policy towards public expenditure. The Conservative Party seems to regard public expenditure—this is a delusion that is all too common on the Opposition Benches—as some sort of fiscal version of original sin. It seems that it regards public expenditure as being pushed by pinstriped busybodies against the public interest. That is not the position. As someone who worked for four and a half years outside the House as an employee, not an elected member of a local authority, I know of the difficulties and disasters that can strike once we start having the cuts that seem to be inherent in the policies propounded by the right hon, and learned Gentleman. I am against that approach. At the end of the day we need a decent social wage. We need civilised services and a level of services that people have come rightly to expect.
What are the cuts that the Opposition would make? When I start to consider where cut-backs may be found, I do not find the examples that have been offered in any way attractive or convincing. It has been suggested, for example, that the National Enterprise Board or, as translated into Scottish terms, the Scottish Development Agency, and the selective assistance programme, should be among the first sacrificial cows to Tory intransigent opposition to high public spending. That approach would have a considerable impact upon the Scottish economy and the difficulties that affect constituencies such as my own in the heartland of West Central and industrial Scotland. It would be disastrous and unacceptable to all of us. There is no doubt about that.
If that sort of philosophy were adopted and a Budget were drawn up on that basis, it would be a mean Budget and one without social relevance. It would be attractive to only a narrow and unbending sort of Conservativism. I hope that many Conservative Members will think again about the way in which they are being led, especially in Scotland, given the achievements and the record of successive Governments in terms of helping industry, saving jobs and creating jobs in areas of real and special difficulty.
I believe that the Government have it about right. I have made my caveat on inflation. There are worries and many

stormy passages ahead, but I am grateful for the Budget. I think that my constituents will be extremely grateful as well. As they listen to the debate and arguments unfold, I believe that those who voted Labour at Garscadden will know that they were on the right side and that they will return to the polls next time with renewed enthusiasm.

5.29 p.m.

Mr. John Pardoe: It is a great pleasure to be able to congratulate the hon. Member for Glasgow, Garscadden (Mr. Dewar), having been with him in his previous life, so to speak, in the House. I can only say that it is good to see him in his reincarnation. We heard a good deal about South Aberdeen in his previous life and no doubt we shall hear much about Garscadden in future as we have today.
The right hon. and learned Member for Surrey, East (Sir G. Howe) is an extremely nice man. That makes it extremely difficult for him to make his insults sound sincere. It also makes it difficult to sound sincere if one is trying to insult him. Therefore, I shall not try to do so, although it is fairly easy. I shall leave that to the Government Front Bench. They may have that part of the partnership.
I was sorry to hear the right hon. and learned Gentleman sneer about the Liberal Party's representation of the fringes of the country. It may be that on the fringes independence is still strong enough to enable the electors to vote for those who are not tied totally to the two-party system. That may be why Liberals are still able to be elected from such areas and why the majority of the 44 hon. Members who do not tie themselves to one major party or another come from the so-called fringes. I do not take a sneer at the fringes as an insult.
The right hon. and learned Gentleman is South-East Man par excellence. The only experience that he has ever brought to the House from outside South-East England was when he travelled across the Atlantic to find out how American labour lawyers made a fortune, so that some of his friends could make one here. He is naturally jealous of my meetings with the Chief Secretary. He would make a marvellous fly on the wall. He accused me of publicising them. Not one word of the content of our latest meeting has


appeared anywhere in the Press, today or yesterday. On the last occasion that there was a detailed exposé of what had passed between me and my right hon. Friend at the Treasury, it was revealed not by us but by an official Treasury briefing.
I notice that the right hon. and learned Gentleman reads not only past Liberal speeches but even our proposals—and that he seems to copy them. His proposals today showed that there is only a penny between us. But I do not accept his costing of his proposals. He has done some strange arithmetic. On the basis on which he costs his proposals at £485 million this year ours would cost not £1,000 but £765 million.
What is more, I suspect that the right hon. and learned Gentleman is guilty almost of sharp practice by estimating his revenue losses in 1978–79 terms but his public expenditure cuts in full-year terms. It simply will not be possible, even if one wanted to—I certainly would go along that road with him—to cut £50 million or £60 million from the expenditure under the Community Land Act this year. It may be possible next year, but even a Conservative Member—indeed, from most likely to do it this year.
I want to answer some of the criticisms of the Liberal proposals. I cannot say that they have gone unreported. We have inevitably been accused of a publicity stunt. The hon. Member for St. Ives (Mr. Nott) said the other day that we were engaging in a publicity stunt rather than serious Budget proposals. Politicians and would-be reformers do not shun publicity—certainly not for their ideas or for themselves—but they do not normally work quite so hard for so long investigating every minute detail of the thing they seek to reform if all they are seeking is a publicity stunt.
The Liberal proposals on tax reform had their genesis a long time ago. They have come from two years long and hard study by a working party and have involved many meetings and long hours of work. Anthony Harris, the economics correspondent of The Financial Times, wrote on 13th April:
The Liberals, as so often, have rather more radical and practical ideas because they tap the best academic brains.
I would remind the right hon. and learned Member for Surrey, East that one would

not tap the best academic brains if all one wanted was a publicity stunt. One would instead tap the kind of "admen" that the Conservative Party nearly always gets to advise on its policies—the sort of men who served Richard Nixon.
Nor would a publicity stunt require me to spend much of the last Summer Recess writing up the report of that working party.

Dr. Jeremy Bray: Perhaps the hon. Gentleman would name the Liberal Party advisers. I am sure that would interest the House.

Mr. Pardoe: Rather than taking up time, I would refer the hon. Gentleman to the publication in question, which he can obtain from the Liberal Party publications department and which has on its front page a full list of the advisers.

Mr. Alan Clark: Gerald Kaplan.

Mr. Pardoe: That is the sort of remark that one might expect from the hon. Member. He actually said the name "Gerald Kaplan". That is the sort of dirty sneer that I would expect from one South-West Conservative Member—indeed from most of them.
One cannot claim that this is a publicity stunt. I therefore move on to the allegation by Mr. Ronald Butt in The Times this morning that this is merely a token gesture to prove that we have some influence on the Government and the Budget. There is no need to prove that, as the Chief Secretary will admit. There are many things in the Budget which we wholeheartedly endorse.
It is difficult even for a Conservative to claim that profit sharing would have been in a Labour Budget without our influence—and that has been welcomed by a wide range of public opinion. I welcome the small business proposals, for many of which, also, we argued. Not even a Conservative could say that the averaging of farm incomes would have been in a Labour Budget otherwise. Indeed, it never appeared in a Conservative Budget, during the 30 years that the NFU was pressing for it.
Thus, we do not need to prove that we are exercising influence on the Government. However, we need to say what is wrong with the British tax system and how it can be put right. There is surely


a consensus in the House that there is something fundamentally wrong with it and that it needs to be put right. Our analysis is that far too much of our tax comes from personal income tax. This is not happening only at the moment. We have always taken too much from personal income tax—some years less, some years more, but even in the 1950s we were taking far too much.
This probably stems from the easy method of extraction through the PAYE system. This has made it easy for successive Governments to take far too much income tax. We now need to switch from personal income tax to taxes on spending. There have been suggestions that that would be inflationary, but it is not, if by inflation one does not mean something demonstrated simply and solely by the retail price index, because that and inflation have only a tenuous connection.
The RPI is a useful indicator, but it has great limitations. It does not include all taxes. In my book, an increase in the price of my loaf of bread is just as much an increase in the cost of living as a rise in my rates or my income tax. There is something strange about an index which shows up an increase in consumer expenditure through indirect taxes of £300 million on drinks as registering 0·9 per cent. on the RPI but shows £700 million extra taxes on VAT goods as registering an increase of only 0·8 per cent. One knows why this happens, but that shows that the selection for the RPI is not a satisfactory guide to the real state of inflation.
It has been suggested also that our proposals are unfair and inegalitarian. I take that criticism very seriously, but I would ask in return—is income tax progressive? The answer, of course, is that it is not. It is nothing like as progressive as it looks. I know that, because, in the very early days of the "Titmice", I read their analysis of income tax—and it has got no more progressive since.
To get the large chunk of revenue we need from income tax we must tax very poor people, because that is where the big revenue comes from. Therefore, we must go right down the income tax scale, which is what makes it a very regressive tax. Income tax should be—and is in almost every other industrial country—a middle and upper-income tax.

Only in Britain is it a means of extracting money from the lower-income groups, even from those who are at or around the poverty line.
The other point that makes income tax less progressive than it looks—and again I am indebted to the "Titmice" for this advice—is that it is more easily avoidable at the top. This is still true. It is therefore not as progressive as it looks at that level. On the other hand, VAT is more progressive than it looks. It exempts the most necessitous half of all consumer spending. Moreover, we can choose how we spend our money on taxed goods.
I do not happen to smoke, but one can choose whether to smoke. It is a matter of choice. One can choose whether one drinks high-taxed whisky or low-taxed ginger ale. De have tried to discourage people from smoking and drinking by the thought of death. Why not try the threat of bankruptcy? Why do we not see what excessive taxation will do to people's propensity to smoke and drink?
If one is switching from one tax to another and reducing income tax, one cannot avoid the accusation that one will reduce the tax paid by the better off at the expense of the lower paid. A reduction in income tax is bound to help some people in the scale more than others. It will help the people at the top. That is in the nature of things. There is little that we can do about it. Nevertheless, income tax should be reduced. We should not accept that argument as a barrier to the future and present reduction of income tax.
The right hon, and learned Member for Surrey, East said that we have been irresponsible by urging a cut in income tax which will cost about £1 billion in a full year. I take the effects on the market seriously. If one really was proposing to cut the total Government revenue take by £1 billion and to increase the borrowing requirement, that would have an effect on the market. However, we are not suggesting that the borrowing requirement should be increased by even one penny. The right hon. and learned Gentleman is therefore wrong to say that the Liberal proposals would increase the borrowing requirement.
Since the right hon. and learned Gentleman asked, I shall remind him of one


thing that passed between the Chief Secretary and myself. I firmly and categorically undertook, on behalf of my right hon. and hon. Friends, that we should be prepared to vote for any consequential increases in taxes on spending which were made necessary by cuts in income tax caused by the passage of amendments during the Committee stage of the Finance Bill. I hope that the right hon. and learned Gentleman will make exactly the same commitment; otherwise, if the amendments are passed, there could be difficulties in the market.

Mr. Ridley: I asked the Chief Secretary the same question. The hon. Member for Cornwall, North (Mr. Pardoe) undertook to vote for such an increase. Did the Chief Secretary give him an undertaking to propose such increases and to vote for them himself?

Mr. Pardoe: I was coming to that. Not only do I believe it right that all Opposition parties in the House should make that firm commitment, but when the time comes—not necessarily today—it would be helpful to the market, to stability and confidence, if the Chancellor of the Exchequer made this matter clear when he replies to the major amendment, or shortly after it is passed, if it is passed.
I reiterate everything that the right hon. and learned Gentleman said this afternoon about the role of Parliament in taxation. I do this for a different reason, although I accept the right hon, and learned Gentleman's historical and constitutional arguments. It will be extremely difficult for any single-party Government to make the changes in income tax which most of us on this side of the House, and many on the other side, believe are necessary. That was the biggest single reason why the last Conservative Government were not able to do what they wanted to do with income tax. They will come across the same problems again. They will come up against the allegations that they are helping the rich and bashing the poor. They will be told that they are doing terrible things to the retail price index. They will find themselves constrained by those types of arguments and prejudices.
It is better that Parliament should do this. On this occasion, unlike most past occasions, Parliament has a chance to do it. I do not believe that it would be

irresponsible for Parliament to take that chance. Indeed, it is Parliament's duty to sort out the mess that the British tax system is in. I urge that it does so.

5.45 p.m.

Dr. Jeremy Bray: It is a privilege and pleasure to be the first on this side of the House to congratulate my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar), whom we are delighted to see back in the House. It is a particular pleasure to hon. Members from Scotland who took part in his campaign which did us a power of good in Scotland and which gave us ample confidence about the way in which we can face the electorate when the time comes. I join in the tribute that he paid to Willie Small, who was a good friend and companion to hon. Members in all parts of the House.
I did not seek to speak in the Budget debate, because I wanted to see the post-Budget analyses and forecasts. I wanted to see the forecasts of the consequences of alternative policies and the report of the Ball Committee on policy optimisation. These are now available, and it is possible to see the Government's general economic stance.
My hon. Friend the Member for Garscadden said that his voters placed unemployment at the top of their list of priorities. There is not a shadow of doubt that that is true throughout the country. The starting point of any consideration of economic policy must be the intolerable level of unemployment. I warn the Government that we are getting near the time when our party supporters will say "If we are to have Tory levels of unemployment and Tory policies, we might as well have a Tory Government."
A cold, bloody anger is building up about unemployment. It does not show in the opinion polls, because the Government have correctly bought off the first reaction of the unemployed by high redundancy payments and wage-related unemployment benefit. But that only focuses the anger more intensely on those who see what is coming. They see the jobs and communities destroyed when the redundancy money has been spent. They see the embittered generation of youth, the habitually unemployed, the blocked careers and the broken spirits.
Before long most families in the country will have been scarred by unemployment. It strikes without respect for person. It strikes at the labourer, the teacher, the company director. It strikes at men and women, at the old and young and the middle aged.
We shall not let any Government do this to us, to our country. But how can we stop them? The Government have told us, the unions and the TUC, that we cannot tackle unemployment before we bring down inflation. We have brought down inflation. But the Government have produced a Budget the consequences of which, by their own forecast, are that unemployment will stay at these appalling levels for another two years or as far ahead as we can see.
I am trying not to use the word "betrayal" because that is not the right word for the degeneration of mind and spirit that threatens us and because we can always snatch victory out of despair.
The Prime Minister is right to point to the international aspects of our problems, to world-wide unemployment, and to stagnation in trade and economic growth. He is right to seek the co-operation of our industrial partners in getting people back to work. But I do not rate his chances of success very high unless we change the basis of our own policy.
We should make it clear that we shall reduce the exchange rate, cut taxes and increase public expenditure so as to reduce the level of unemployment by a quarter of a million a year for four years while maintaining a satisfactory balance of payments. If we can get the co-operation of the unions in the continued restraint of wage increases, it can be done at little cost in higher inflation than would otherwise have occurred. But we must make it clear that we put tackling unemployment ahead of tackling inflation.
What evidence is there that this can work? I would lay a fair bet that I have looked more closely at the econometric evidence, at the record over the past 10 years, read more of the prime research in monetary economics than any other hon. Member—only because there are very few who can understand the mathematics. I must say that I enjoy it—Friedman and Schwartz, Tobin and Swan, Friedman and Meiselman, Ando and Modigliani, Brainard and Cooper,

Andersen and Jordan, De Leeuw and Kalchbrenner, Fromm and Taubman, Palasch, and a lot more from the United States, There are a few relatively modest contributions from the United Kingdom including Goodhart, Laidler, Minford, Ball and Burns, Buiter and others.
Like all hon. Members, I also read the semi-technical literature, the bank reviews, the tediously repetitious columns of The Times and Financial Times and even Greenwell's Bulletin. I hope that Tory Members will not count me totally ignorant of their point of view and the evidence, or lack of it, in support of that view.
I have gone to some trouble to try to find methods by which economists, whether monetarists or otherwise, can serve the needs of policy makers rather more realistically in this uncertain world than by the forecasts and mechanical rules we are offered today—from either side of the monetarist debate. I shall not be content until those means which were discussed in the Ball Report on policy optimisation, for which the House should be grateful, are brought into use as that committee recommended.
We are politicians, responsible for today's actions, and we cannot wait. The evidence of the praticality of the policies and priorities which I urge on the Government are in the article in the latest National Institute Economic Review which compares the Treasury, London Business School and National Institute models: in the updating of that article by last month's Treasury working paper No. 2 by OdlingSmee and Hartley; and in the post-Budget forecasts prepared by the St. James' group and tabulations which I have had from the Treasury model on alternative policies, copies of which are available in the Library.
We are told that the effect of a devalution is soon worked out by wage increases and the international pricing of traded goods. It is perfectly possible to impose that behaviour on a model. But if we look for hard quantitative evidence on how long the lags are it is difficult to establish that devaluation effects are completely wiped out. Currently, with the latest version of the Treasury model, the consequence of a 10 per cent. devaluation is to improve the balance of payments by £3,200 million after four years, with unemployment reduced by 230,000 and


the balance of payments still keeping up to £3,000 million after six years. Prices certainly would be higher—5·6 per cent. after four years and 8 per cent. higher after six years.
The improvement in the balance of payments would allow room for cuts in direct taxation of £1,500 million and for increases in public expenditure of £2,000 million, which would reduce unemployment by a further 800,000, to achieve the reduction of 1 million that is required. If the unions agreed to continued wage restraint—and I think that the prospects of their doing so in the context of an economic policy like this are somewhat greater than they are now—the gains would be larger and the inflation less, with the increase in the borrowing requirement limited to £2·5 billion in the fourth year and £3 billion in the sixth year. Relative to the size of the expected borrowing requirement in those years this would be perfectly manageable.
All of this must sound very reminiscent to the right hon. Member for Chipping Barnet (Mr. Maudling) and to the Prime Minister of the advice given to them in the sixties—advice which the Prime Minister forswore in that much-quoted passage in his speech at the 1976 Labour Party conference, later quoted by Friedman in his Nobel Prize lecture. There is, however, one difference between this evidence and the advice given to the Prime Minister when he was Chancellor of the Exchequer. It is that the evidence for the practicality of this policy has been accumulated mainly over the intervening years when the Prime Minister and the Chancellor have had their backs turned, listening to siren voices, with no well-informed challenge within the Cabinet.
Even if all that I say proved true, I have been talking only about changes of policy not relative to the economy today but relative to what would otherwise happen to the economy over the next four to six years. We are already facing an annual deterioration of £1,000 million or more a year in our balance of payments, due to the galloping decline of our manufacturing industry. To cope with that we shall in any case have to depreciate our currency and face higher rates of inflation than our industrial partners. Furthermore, the future is murky. We have no base against which to compare alternatives.
Sterling has already fallen 10 per cent. in the past three months. We could well find greater restrictions and even higher unemployment forced on a Government following present economic doctrine. Alternatively, there could be times when we might believe that our problems had eased.
To pursue an expansionist policy is not to escape from those uncertainties, if we are to become more certain about reducing unemployment, as I believe we must, we must be prepared to become less certain on other matters, including inflation. Furthermore, we shall only have bought time and created the conditions in which to achieve by other means the regeneration of our industry.
We cannot say in advance by how much we shall have to let the pound fall. What we can and must say is that we shall pursue an exchange rate policy which in the face of stagnant world trade would be aggressive, expanding our economy. But other countries need not import our unemployment if they also expand their economies, which would be to our advantage as well as theirs. That is the message which the Prime Minister should take to the summit. If he pleads merely for expansion he may have some success. He will have far greater success if he has the sanction of an expansionist and aggressive exchange rate policy, particularly if he has the backing of the unions in taking that line. He will certainly find it a more creditable sanction than the threat of import controls.
How we feel our way forward, the possible phasing of reflation, the instruments for influencing the exchange rate, the monetary policy implications—all of these I would cheerfully argue with Ball and Burns, Godley, Goodhart and many more hostile and less-informed critics on their criticisms, coefficiently coefficient, slogan by slogan. This is not the place to do so. It is necessary argument. It is argument that Ministers should not have neglected.
What we can ask is how can there be such swings in economic fashion as to make a policy which would have the instinctive and enthusiastic support of nine-tenths of the members of the Labour Party, and which is well based in the evidence for those who care to read it, seem for the moment so unfashionable, not only to many pundits but to our own


Prime Minister and Chancellor. The reason is that there are many obscurities.
There have been traumatic disturbances to the world economy. Many people to whom it is important to understand and to speak about what is going on—journalists, bankers, civil servants, Ministers and MPs—who cannot follow the technical discussions follow each other instead. The result is this curious swarming behaviour seeking safety in numbers and flitting from one economic fashion to another.
I simply say to the Prime Minister and to the Chancellor that it has been a bad dream. Please wake up before the party wakes you up in bitter anger at the calamity of unemployment.

6.1 p.m.

Mr. Reginald Maudling: I listened with great interest to the hon. Member for Motherwell and Wishaw (Dr. Bray), who is very widely read in these matters. On the exchange rate, I simply say 10 him that in the long run the international value of sterling can depend only on the relative productivity of British industry. In the short term it can do this or that. If it is true, as I believe it is, that at present over a wide range of British industry we are producing from the same machinery only half of what the Germans are producing, then our exchange rate is bound to be under very great pressure.
It seems to me that in judging any Budget or Finance Bill there are two tests—first, whether the total amount of additional purchasing power that the Chancellor intends to put into or to take out of the economy is broadly the right amount and, secondly, whether the measures that he has taken to do that are acceptable.
The first is a very difficult judgment. Any Chancellor faces enormous uncertainties in forecasting. It is easy to deride Chancellors for getting their figures wrong until one has to do it oneself. For any Chancellor in any Government the forecasting machinery available is still very tenuous compared with what is really needed. The total figures are so large that even £500 million—an enormous sum of money—falls within the margin of error or, as I should call it, the margin of judgment.
Therefore, I find it difficult to say that the Chancellor is wrong in his judgment on the amount that we should put into the economy at present. I have seen no evidence of any credible kind that he is wrong on the total amount of stimulus to demand that he is putting into the economy at the moment.
I think that the criticisms have tended to cancel themselves out. Some people have said "Despite what the Chancellor has done, no one will be very much better off." Others have said "He is taking very great chances by increasing the amount of demand in the economy." Both cannot be right. The truth is that, as a result of the Chancellor's measures, people will have a lot more money to spend than they otherwise would have had.
Those who say that such an expansion of demand as is encompassed by those figures is excessive have to prove their case in the face of the very low level of demand in our economy compared with our potential output. I do not think that it is easy to fault the Chancellor on his general Budget judgment of the total amount of additional purchasing power that he wishes to create.
Are the Chancellor's measures right? I think that to increase the allowances and to restore the reduced rate band is absolutely right. I can hardly say otherwise, having done the same myself in 1963. But I must reflect that to produce the results that we did in 1963 cost not £2½ billion, but £269 million. That is an indication of the extent to which inflation has progressed in the meanwhile.
I welcome the restoration of the reduced rate band. One of the problems with our tax system is that we let in the clutch of taxation too rapidly. When people come into taxation, they come in at too high a level. I think that restoring the reduced rate band has been a good idea and will certainly be of benefit.
Should the Chancellor have done more? I believe that he should have done more, particularly for the middle and top earners in our economy. He must recognise the disappointment created by his measures to these people who are immensely important to the health and prosperity of our economy. The disappointment has been very great. Much of the disappointment has been due to


the Chancellor's pre-Budget build-up. He has done nothing about the absurdly high rate of tax on top earners, which I gather the Chancellor of the Duchy of Lancaster recognised as being absurdly high. It cannot wholly be a coincidence that our economic performance is low compared with countries whose relative rates of taxation are far less deeply progressive than our own.
I think that more should have been done to raise the levels for the higher rates. All the way up the scale more could have been done, without very large cost, to create more incentive and to meet the expectations to which pre-Budget leaks and stories had given rise. I do not think that the Chancellor should underestimate the degree of disappointment and disillusionment that his proposals have created among management in this country—the people who, by earning the higher incomes give evidence that they have higher talents, greater enterprise and produce the greater effort.
I very much hope that something can be done—I think that it can be done and that the cost would not be all that high—at the middle and higher bands as evidence of the fact that the Government as a whole, not merely the Chancellor of the Duchy, recognise the importance of those who are really creating the wealth of this country. A country can be successful only on the shoulders of successful men. If we discourage successful men, if we give them the impression that their efforts are not valued, we shall prevent them giving of their best and thereby prevent the country from enjoying the best that it could have enjoyed from their services.
It is argued that other further tax cuts could be made. I very much doubt whether it is wise to go in for a large additional reduction in the standard rate. I listened with great interest to the Chancellor-in-waiting this afternoon. I had the impression that he will be waiting for quite a long time. I do not believe that a reduction in the standard rate is as cost-effective in practical terms as reductions in the higher rates of taxation in the higher bands.
People who argue, as I understand the Liberal Party does, for very large further reductions in income tax must either

accept an increase in the borrowing requirement, specify reductions in public expenditure which will finance these cuts or specify increases in other taxes which could equally finance these greater reductions.
I shall come later to the borrowing requirement. As I have said, I think that the total injection into the economy made by the Chancellor is adequate. Those who propose very large additional tax reductions—for example, the Liberal Party—should make perfectly clear what reductions in public expenditure they would put forward as a counterpart for that.
The argument that we should switch the balance between direct and indirect taxation is very old. We all followed it. I did my best in 1963–64 by reducing income tax and putting up taxes on alcohol and tobacco to vary the balance between direct and indirect taxation. The argument that we should tax people at the point of spending rather than at the point of earning is very good, but there are other considerations. Indirect taxation tends to be regressive, and VAT in particular, because it is widely spread, falls on many things which are far from being the luxuries of life.
Any Government must consider the effect on incomes policy of increases deliberately made in the cost of living by increasing indirect taxation. Therefore, the timing of any deliberate increase in indirect taxation has to be considered with very great care. I am not convinced by the Liberal Party spokesman that there is in either of these matters justification for the very large proposed reductions in income tax which the Liberal Party puts forward with such enthusiasm.
I turn briefly to the broader questions of economic policy. I believe that the whole purpose of economic policy is to achieve economic growth. I know that this is sometimes regarded by some of my colleagues as a vulgar purpose, but it seems to me that the only purpose of any economic policy is to expand the production of goods and services for human benefit.
The precondition of any expansion of output is an expansion of demand. However, that is not the total answer, certainly this year. Unless there is more demand for the products of industry, there will not be an expansion of the output of


industry and there will be no expansion of investment in industry.
Much has been said about the danger of expanding the borrowing requirement. I think that this danger is sometimes exaggerated. It is difficult for any Chancellor to assess accurately—within £1,000 million—what the borrowing requirement will be. What matters about the borrowing requirement is its relationship to the total savings of the nation and whether an increase in the borrowing requirement would either pre-empt funds needed for the expansion of private investment or increase the pressure of demand in such a way as to create an inflationary situation. I cannot, at the moment, see that a further increase in the borrowing requirement would do either of those things.
There is the argument about the money supply, with which I shall not bore the House by repetition at any great length. The present monetarist doctrines are a passing fad. The figures of the money supply—M1, M3 and so on—are no more than a measure of that proportion of their total assets which the public care to keep in liquid form in any given time. To try to regulate the economy by changing the money supply is like trying to regulate the speed of a motorcar by twisting the needle on the speedometer. That might be a little controversial if I pursued it any further.
The limitation on the expansion of demand through the reduction of taxation in the 1960s was first, the danger of stimulating further incomes expansion, and secondly, the danger of strain on the balance of payments. In the current year, the danger of the further pressure on expansionary incomes demand is less than it was. The second danger to the balance of payments is sheltered, for the time being, by the development of our North Sea oil resources. But there has developed a new danger, namely the total failure of productivity to rise in this country.
In the 1960s we could be certain, and experience showed, that an increase in demand would produce not only increased output but an increase in productivity. We cannot be sure of that at present. The basic and fundamental fact of our economy is that so long as we produce less from our equipment than other people can produce, our living standards are

bound to be less than the living standards of others.
By cutting taxation, particularly income tax, and by further extending the cuts, as the Chancellor should do, up the range of incomes, we shall be removing a disincentive to output and productivity. We shall be creating a new incentive. We need a wholly different attitude to the requirement of efficiency, output and productivity. The day when I hear the leaders of the trade unions spending their time and speeches on persuading their members that the fundamental need for themselves and their country is more efficiency and more productivity, I shall begin to have more hope for our future.

6.15 p.m.

Mr. David Stoddart: We have just listened to the usual balanced, analytical and thoughtful speech that we have come to expect of the right hon. Member for Chipping Barnet (Mr. Maudling), at least in latter years. Many of my hon. Friends will agree with many of the things he said, particularly about the net borrowing requirement and the money supply. However, I believe that trade union leaders are well aware of the need to increase productivity. History has shown that it may well be that an increase in productivity will put union members out of work. We have to overcome that history. We have to persuade trade union leaders and trade unionists that by improving productivity they will not be putting themselves on the dole. That will be difficult to show them, particularly bearing in mind what has happened over the last few years—and I do not mean the last three and a half years. It has happened over a long period of time. We should apply our minds to this matter, as I am sure the right hon. Gentleman will.
When the Chancellor formulates and introduces a Budget, he has a formidable task in a modern society. The Chancellor this year must have had three major elements in mind—unemployment, inflation and the balance of payments. Those problems, which are deep-seated, deep-rooted and long-term, are all bound up together. It needs a Solomon of a Chancellor, from no matter which part of the House he comes, to be able to balance the elements and to produce a balanced Budget that will be suitable to the needs of the country.
The Chancellor has probably produced the right sort of balance for the time being. He has been able to reduce taxation, particularly direct taxation, but, at the same time, has been able to improve and increase public expenditure in areas in which it is badly needed. Nobody in the House would disagree that it was necessary and desirable to provide 400 more kidney machines. There has been that sort of public expenditure which is acceptable and desperately needed as well as a number of tax cuts which will be acceptable to all of us.
It is no longer good enough to believe that the judgment applied in a Budget can stand for any period in the present state of the world economy. We can no longer say, as some Conservative Members appear to be saying, "We can have a Budget in April and that must last for a long time. If there is the slightest suggestion that some further measures might be required in one, two, three, five or six months time, you do not know what you are talking about. You are not doing your job properly." It may be that in a short period of time, the Chancellor will need to take further measures. My right hon. Friend will have to do that if the measures that he has taken in the Budget are not producing the sort of results that he expects.
Since the Budget, there have been calls—repeated by the Conservatives and the Liberals today—for further tax cuts. The right hon. and learned Member for Surrey, East (Sir G. Howe) outlined the further tax reliefs that he would like to see, but, as so often, he was not prepared to balance that by telling us exactly where he would find the money.

Mr. William Clark: My right hon. and learned Friend told us exactly where the money would come from.

Mr. Stoddart: He did not. He went back to the parrot cry that the NEB must be denuded of funds. I believe that those funds will be necessary to maintain employment at a reasonable rate and to cut the level of unemployment. That was the only measure that the right hon. and learned Gentleman mentioned. I heard no other mentions of public expenditure reductions. Perhaps some of the right hon. and learned

Gentleman's colleagues will be able to tell us where the other cuts are to take place so that we know exactly where we stand.
I can suggest some desirable public expenditure cuts in the current financial year. For example, we shall be spending £750 million as our net contribution to the EEC. That is equivalent, on the Shadow Chancellor's figures, to a reduction of 2p in the standard rate of income tax, but we hear no mention of that from the Opposition. They are happy to have that sort of public expenditure—and it is just as much public expenditure as is spending on hospitals and schools. It comes from the public purse, but is used not to subsidise our industry but to subsidise European farmers so that we can pay more for our food.
That is public expenditure which I should be happy to cut. Perhaps one day we shall take the Opposition, and maybe even the Government, with us in making clear to the British people that they get nothing for their £750 million except higher food prices and other detriments to their standard of living.
The hon. Member for Cornwall, North (Mr. Pardoe) wants a cut in the standard rate of income tax. I have never understood why the Liberal Party concentrates so much on a cut in the standard rate when it would be socially inequitable and, at the present time, would be using money in the wrong way.
If we have additional money to spend on tax reliefs, there is one section of the Community that needs those reliefs more than any other—the families with children. Clearly, if we want to give more assistance to families, there are better ways than by a 1p or 2p cut in the standard rate of income tax. We would do better to extend the lower rate band or increase tax allowances.
If the Liberals want to be liberal and want social progress, they should be suggesting action along those lines rather than along the lines proposed by the hon. Member for Cornwall, North. I cannot understand why they seem to go along with the Tories in wanting to reduce the higher rates of tax.
Before a man with a couple of kids reaches the 40 per cent. band, he will be earning about £9,000 a year which, even on present standards, is not an


unreasonable salary. In addition, a man earning a very high salary, say £50,000 a year, will get from the Budget a tax reduction of £750 a year. As I said in the Budget debate, that relief, coupled with the post-tax 10 per cent. increase that he will no doubt receive, will give him an additional net £1,500 a year—almost the same as the £31 a week which is the total income of a pensioner couple. I hope that the hon. Member for Cornwall, North will rethink his priorities because I believe that he is more on my wavelength than on that of the Tories.
I turn to the very grave problem of unemployment. There is no doubt that to have nearly 1½ million people unemployed is grossly wasteful of our resources. The Government need to tackle this problem—perhaps in different ways. We can no longer say that if we increase expenditure in industry on plant and equipment, we shall necessarily find all the jobs that we need. Additional investment, of itself, will not do that.
We know that an additional 1 million jobs will have to be found over the next five years and I do not believe that they will be found by increased investment in industry. Indeed., the reverse may be true. Further investment in industry—certainly without the outlet of demand—could increase our unemployment rate. That is why the Government must tackle the problem, which exists not only in this country but abroad, more vigorously than it has been tackled by any previous Government.
The Prime Minister has had many talks with his counterparts overseas about the world economic situation. I hope that he has been saying to the other leaders that there is a huge unsatisfied demand throughout the world. Demand in India, Africa and South America is phenomenal and is quite sufficient to keep all the unemployed in Europe, America and elsewhere in work if we can only find ways of ensuring that the people in those countries with this huge unsatisfied demand are able to satisfy it. Perhaps this is one of the ways forward that the Government should be considering more vigorously with other Governments throughout the world.
In this country the Government must look at new measures to deal with unemployment. I shall go on pressing for a reduction in the retirement age for men.

I say that not only because it would help to reduce unemployment but also because it would be equitable for men and women to retire at the same age, whether it be 60, 55 or any other age.
That is a measure which the Government could be considering seriously. It would not cost a great deal of money if the replies given me by my right hon. Friend the Chancellor are to be believed, as I am sure they are. My right hon. Friend estimates that it would cost £65 million.

Mr. Alan Clark: How much?

Mr. Stoddart: Perhaps I had better explain that figure. According to an Answer given me by my right hon. Friend, all things being equal, the cost of reducing the age of retirement for men from 65 to 64, provided that all those jobs were taken up by people on the unemployment register, would be £65 million per annum.

Mr. Robert McCrindle: Net.

Mr. Stoddart: Yes, net. That is the answer, according to the Government, and that would be a relatively low cost to get people off the unemployment register.

Mr. McCrindle: In case all the jobs were not taken up, would the hon. Gentleman care to confirm that the cost of reducing the retirement age of men from 65 to 64 would be not £65 million but nearer £265 million?

Mr. Stoddart: Yes. I said "all things being equal", and I hope that I explained that the £65 million applied provided all the jobs left by people at 64 were taken up by people at the moment on the unemployment register—and it is reasonable to expect that they would be.
But that is only one aspect. There are others which the Government should be considering. There is, for example, a lot of overtime being worked. This is a matter that the Government could look at with industry and with the trade union movement in an attempt to reduce the number drawing unemployment benefit.
Probably my right hon. Friend the Chancellor of the Exchequer has just about got it right. I hope that there will be good discussions on the Bill in Committee. I wish the Standing Committee every success. I shall not be joining it


this year, I am glad to say. I wish the Committee good days and long nights. It will be pleasant to feel that I can go home and leave other hon. Members to get on with the most important job of studying the Bill in detail. I hope that the Committee does its job very well and that the Bill goes through this House unscathed.

6.33 p.m.

Mr. J. Enoch Powell: The hon. Member for Swindon (Mr. Stoddart) is a man of sanguine and cheerful temperament, and he does us all good, though he disclosed at the end of his speech one reason for his cheerfulness today.
At various stages in his remarks he mentioned three ambitions not unconnected with one another in which I join him, though I wish I could be so hopeful about them. The first is that we could find some way of overcoming that latent and endemic Luddism in this country which causes us rather to fear than to hope for means of increasing output per man. This is undoubtedly a contrast between our attitudes and our society and those of other nations, and it is a burden and a disadvantage under which we labour.
The hon. Member for Swindon referred also to the unexploited markets of other continents. I could wish to see the freedom of investment and of trade which is the only way in which the latent demand in the world will be unlocked and turned into real demand.
Finally, though our agreement on this will not be shared throughout the House, I can wish that the enlightenment which the hon. Member for Swindon and I share upon the disadvantages of this country forming part of the European Economic Community spreads rapidly to all Benches and all parts of this House.
This will be an unusual Finance Bill, and an unusual Committee Stage that will commence shortly. Although a great deal of work has to be done upon the details of Finance Bills—indeed, upon more than the details: I mention here the whole question of retrospection which will have to be debated carefully and thoroughly in Committee—we have not for a long time been put upon the necessity of facing in practical terms what is

called the Budget judgment of the Chancellor of the Exchequer. The technical reason for the difference this year is clear enough. Since the House may have it in its power to make a large alteration in the reductions of taxation proposed in the Budget, it therefore has to face as a practical consequence the implications of doing so. So I think that there will be a realism and a responsibility about our debates on this Finance Bill, for that reason, which is unusual.
That the proposals for altering the balance of the Budget are major cannot be disputed. The right hon. and learned Member for Surrey. East (Sir G. Howe) represented a further remission of taxation of £500 million as a very little thing. But it is, after all, an increase of 25 per cent. on the major remission of taxation proposed in the current year by the Chancellor of the Exchequer. The proposals of the Liberal Party amount to an increase of that proposed remission by up to a half. So the House and the Committee are being asked to face the implications of requiring a further substantial reduction of revenue and, in particular, of revenue raised from direct taxation.
There are four distinct ways in which the consequences of that could be drawn. One of them implies no net reduction in revenue. The other three accept a net reduction in revenue but would propose to deal with it in very different ways.
The method which involves no net reduction of revenue would be to offset the reduction in direct taxation by a corresponding increase in indirect taxation. This was canvassed in his Budget speech by the Chancellor of the Exchequer who, perhaps under the influence of the hon. Member for Cornwall, North (Mr. Pardoe), said that
In principle I have some sympathy with this view".—[Official Report, 11th April 1978; Vol. 947, c. 1203.]
that there should be a transfer of weight from the direct foot to the indirect foot. I myself believe that is a very dubious point of view and consider that the argument so often heard—it has almost become a popular fashion—that there should be a shift from direct to indirect taxation is extremely vulnerable.
I would, however, not challenge it primarily upon the reasons given by the


Chancellor of the Exchequer. The Chancellor of the Exchequer argued that to raise more revenue from indirect and less for direct taxation would be "deliberately to raise the inflation rate". That I believe to be a fallacy, a special case of the general fallacy that inflation is caused by some prices rising. The mere increase in the price of some articles produced by the imposition of additional indirect taxation would not in itself—indeed, I would argue, could not—cause that general rise in prices, or fall in the value of money, which is inflation.
The Chancellor's second argument was that it would "increase the cost of living". That statement requires clarification; for if by the cost of living is meant merely the mirror-image of a fall in the value of money, then it is simply another way of repeating the fallacy that an increase in indirect taxation produces inflation. What an increase in indirect taxation almost inevitably does do is to alter the relative cost of living for different classes of people—for it can hardly help but make some items more and others relatively less expensive. Most of the forms of increase of indirect taxation would certainly, by the alteration in the make-up of the cost of living which they would produce, rest a relatively larger burden upon the shoulders of those receiving lower incomes than to levy the corresponding amount of revenue by direct taxation.
I myself do not believe that there is any force in the notion of a sort of God-given or predetermined optimum balance between the proportion of revenue raised by direct and by indirect taxation. Indeed, the whole concept of balance applied to this relationship imports a fallacy.
I would venture on the contrary to say that income tax is the best of all taxes—that may only make it the best of evils—and that it has great advantages and some of the characteristics which an ideal tax ought to have. It is, for example, more neutral in its effect than any other form of raising revenue. It prejudices less than any other method of raising revenue the decisions which are taken by the taxpayer. The decisions to spend or to save, the decisions on what to spend, the decisions as between investment and consumption, are less influenced by direct taxation than by other forms of taxation.
Its other great virtue is that it is fat more sensitive than any other method of taxation to secondary purposes. The first purpose, of course, is to secure the revenue; but the days are long gone, if they ever existed, when the motives of taxation were restricted to the raising of revenue. If it is intended to use the method of raising revenue to produce certain consequences, to favour certain activities, to assist certain classes of the community, and if hon. Members in other parts of the House want to see it used as a method of redistribution, there is nothing to rival direct taxation in the sensitivity and accuracy which which it can be made to serve those purposes.
So I would not wish to see any offsetting take place in the form of a proportionate increase of indirect taxation.

Mr. Alan Clark: I remember many years ago, be fore I entered this House as a Member, being greatly impressed by a pamphlet that the right hon. Gentleman wrote, which I think was called "Income Tax at 3s. 6p. in the Pound." I may have got the figure wrong. Was that purely an intellectual exercise, or has the right hon. Gentleman changed his views about the relative merits of direct and indirect taxation?

Mr. Powell: I think that the hon. Gentleman will find, if he refreshes his memory, that it was actually 4s. 3d. in the pound, which shows what a long time ago it was. I also do not think that he will find that my proposals in the Morecambe Budget resulted in a shift in favour of indirect as compared with direct taxation, though they certainly resulted in a major shift as between Government expenditure and the gross national product—but that is a different matter.
So I come to the three alternative consequences of the major increase proposed in tax remission, which would result in a net diminution of revenue, whether that net diminution be £½ billion, £½ billion or £1 billion.
The first approach is to maintain that it can and should be offset by a reduction of expenditure in the current year. I am the last person to cavil at reduction of public expenditure as the basis for remission of taxation. Indeed, I have argued in a succession of debates that very substantial reductions amounting to several billions of pounds are practicable and


desirable in order greatly to reduce the public sector borrowing requirement. I have also argued that in the nature of things, the emphasis of those reductions will lie on capital rather than on current public outlays.
But what I do not believe—and in this I am at one with the hon. Member for Cornwall, North—is that it is possible at the beginning of a financial year so to operate upon the expenditures during that financial year, even upon capital account—certainly not upon current account, but even upon capital account—in such a way as to accommodate either the whole or the greater part of the remissions of taxation which are being proposed.
So we fall back upon looking at the net borrowing requirement.

Mr. Lawson: Surely the right hon. Gentleman must be aware that within the past two years there have been reductions of public expenditure which have had quite substantial effect in the year in which they have been made, even though there has been a still larger effect in the subsequent year.

Mr. Powell: I wonder whether those were reductions which had been decreed in the course of the financial year itself. However, perhaps there is a connection between the intervention of the hon. Member for Blaby and what I was about to say about the net borrowing requirement; for there are two points of view which a would-be tax reducer can take of the net borrowing requirement.
The more cheerful—which I feel may well be at the back of the minds of many hon. Members on both sides of the House—is to say "Well, you never know, it is one of those magnitudes about which Chancellors of the Exchequer can be enormously mistaken; so why should we be bothering about the net borrowing requirement?" "After all", this argument continues, "in this very Budget speech we were reminded that in the financial year just closed, the net borrowing requirement turned out in the end to be no less than £3½ billion less than had been anticipated at the beginning of the year. So let us be cheerful, let us not worry too much about the odd billion

or two on the net borrowing requirement, one way or the other".
In fact, I think many Labour Members felt rather cheated when they learnt that the net borrowing requirement had been so much lower in the last financial year than had been anticipated. I think they felt that there must have been, all unbeknownst to them, enormous reductions in those forms of public expenditure of which they so much approve, and that somehow they and the nation had been short-changed.
There is instruction to be had from seeing how this enormous shortfall on the estimate of the net borrowing requirement for 1977–78 took place in fact. There are three principal items. The first is that the excess of current revenue over current expenditure was about £500 million more than had been estimated. But before anyone starts to cheer over the unexpected buoyancy of the revenue which that would appear to disclose in the year 1977–78, a glance at Table 9 in the Financial Statement will repress that jollification. Almost the whole of the difference—indeed mom than the whole of the difference—is to be found in the last item in that table, which is labelled "Other". There is, however, a footnote to the word "Other". If hon. Members can read print which is so small, they will see that it says:
Includes the 10 per cent. of 'own resources' refunded by the Communities to meet the costs of collection.
So a windfall of the order of about £900 million from an element in the analysis of revenue so nondescript is to be relegated to the position of "Other" accounts for almost the whole of the shortfall—and that is one of the three major elements in the shortfall in last year's borrowing requirement.
The second is the less than expected outgoings from the National Loans Fund. But here again it is important, I hope that what I am saying is of some comfort and alleviation to Labour Members, particularly those below the Gangway, to notice that the diminution in loans to, for example, nationalised industries was substantially offset by an increase in loans to local authorities and harbour authorities, and that a quite substantial element was an alteration in


the loans net "within central Government" itself. So the shortfall was again not so much of the nature of a real reduction in deliberate Government expenditure but very much of a presentational or accidental character.
The remaining reduction in central Government demand comes from "Other funds and accounts", and is of the order of £900 million. We find "Other funds and accounts" by referring to Table 15 of the Financial Statement, which tells us what they are. They are the surplus or deficit
on the National Insurance Fund and changes in departmental balances invested in governmental debt, etc.
In fact, they are pare spoof, bookkeeping entries, which turned out or were contrived to turn out—I do not know which it may be—larger than the figures which had been set down in the original estimate.
So much for the central Government shortfall of £2½ billion. The further £1 billion which makes up the full total is to be found in Table 6, and is the last item with which I shall trouble the House. The table shows that it was mainly in the "miscellaneous receipts and accruals" that the alteration between what was expected and what took place occurred.
Therefore, we learn from this analysis that, so far from there being some persistent tendency, a sort of law of nature on which we can rely, for Governments to overestimate the net borrowing requirement and to discover at the end of the year that they have been the recipients of huge sums which they have failed to disburse, the phenomenon of the underestimate in 1977–78 was a highly artificial and special one which there is no reason to expect to be repeated. It is just as likely that the miscalculation will work out in the other direction in 1978–79 as that the balance will still be the same way. So I believe that, whatever else we rely on when we address ourselves to the net borrowing requirement, we should rid our minds of the notion that the Government achieved huge economies, huge underspending, in 1977–78, and that therefore they can do it again, and probably behind our backs are planning to do it again. There is no such thing. We had better forget it and look at the net borrowing requirement upon its merits.
That brings me to the last school of thought, which says "Well, why not another half a billion, three-quarters of a billion or a billion pounds on the net borrowing requirement?" The hon. Member for Cornwall, North reminded the House that in a previous Parliament on behalf of his party he had encouraged the Government of the day not to be too afraid of what looked like a large and threatening public sector borrowing requirement.
Before the Chancellor of the Exchequer is in a position to deal with the arguments of those who say that a substantial additional remission of taxation can and should be made and can be carried upon the public sector borrowing requirement, he must go a good deal further than he has gone into the philosophy of his Budget. In particular, he must explain what I might call the theory of the stimulus. Here are the chancellor's relevant words, referring to the full year £2½ billion remission of direct taxation. He said:
cuts in income tax will account for almost all the £2½ billion stimulus which I have announced".—[Official Report. 11th April 1978; Vol. 947, c. 1203.]
The natural implication of those words—they correspond with expressions often used in the Press, such as "injections into the economy", "putting so much money into the economy"—is that the £2½ billion remission of direct taxation in a full year, £2 billion in this financial year, represents in itself an equivalent stimulus to the economy.
We shall need to hear a good deal more in much more detail from the representatives of the Treasury before we can decide whether it would be wise and prudent to increase that so-called stimulus by half a billion pounds or a billion pounds. How does the Chancellor believe, how does the Treasury believe—will they explain more precisely—how the stimulus is imparted to the economy by the £2 billion remission of direct taxation?
The Chancellor of the Exchequer said that remission would result in a three-quarters of 1 per cent. increase in gross domestic product in the year 1977–78. That is to be found in column 1194 in the Official Report of his Budget speech. It is a very interesting figure. The £2 billion represents 1¼ per cent. of the GDP; but apparently only three-fifths of that


1¼ per cent. is stimulus to the economy. Out of a £2 billion remission of direct taxation, the Chancellor of the Exchequer expects to get only three-fifths by way of increased output. How did he arrive at that figure? Why is it three-fifths of the remission of direct taxation that he thinks will be represented by increased output? And, by the way, Mr. Deputy Speaker, that ¾ per cent. has already been counted into the assumed basis of revenue in the calculations upon which the Budget rests. I ask, then: what is the mechanism by which the £2 billion of remission of direct taxation is converted into a ¾ per cent. increase in national output?
Let us look at the alternatives. If the same amount is to be expended but £2 billion is to be obtained by borrowing from the public and overseas, instead of being raised in direct taxation, the average effect is nil. I say the "average" effect because, of course, it may be the view of the Chancellor of the Exchequer in Gladstonian mood, that money which is left to fructify in the pockets of the people will be more actively employed than money which is secured by the Treasury by way of borrowing. But then there is an equal and opposite possibility, namely, that the public will proceed to save—and I mean save in the narrow, Keynesian sense—more than they have been doing hitherto. The Chief Secretary shakes his head at that; but I do not mind: I do not mind because I am simply assuming that the effect of a transfer from direct taxation to borrowing is neutral. So where is the stimulus? There is no increase in demand there. There is simply the same amount of demand withdrawn from the public, to be applied or exerted by the Government.
It almost looks as though it is the intention of the Chancellor of the Exchequer not to obtain the whole of his extra £2 billion, or even most of it, by borrowing from the public and from overseas, but that he intends to convert it, by borrowing from the banks, into additional demand. Is this so, or is it not?
We shall want an answer to this before we can proceed very far in deciding whether the public sector borrowing requirement ought to carry the weight of a further remission of direct taxation. We shall need to understand the calculation which underlies the present proposals

before we can decide whether they ought to be altered. Does the ratio of 3:5 between the expected expansion and the remission of direct taxation represent the ratio of the £2 billion which is not to be borrowed from the public and from overseas but is to be converted into additional monetary demand? Is that the theory?
The Chancellor of the Exchequer has to do a good deal of explaining. He can no longer rest upon the simple words "£2 billion stimulus"; for if he attempts to do so we shall say "£2 billion stimulus! Why not a £2·5 billion stimulus?" The Chancellor's hon. Friends behind him, and his hon. Friends below the Gangway, will say "Very good, Chancellor of the Exchequer. We are grateful—although we do not fully understand it—for the £2 billion stimulus which is to be given to the country. We like the ¾per cent. addition to the gross national product. But why should you weary in well doing, if it can be done in that way? Take the advice of the Liberal Party or, if you do not take the advice of the Liberal Party, take the advice of Her Majesty's Opposition."
The Chancellor of the Exchequer will have to explain why it is that he can safely and properly provide a stimulus of £2 billion whereas a stimulus of £2·5 billion or £3 billion is unmanageable. The central debating point in Committee, then, will take us to the heart of the economic theory upon which the Government are operating; for unless and until that theory is exposed, the Chancellor of the Exchequer will be naked to his enemies. He will be unable to explain why he considers that the balance of his Budget has to be preserved in its present form and cannot be altered, and why the alteration cannot be charged upon the public sector borrowing requirement.
So I look forward, as does the hon. Member for Swindon (Mr. Stoddart)—although I do so with an expectation of closer participation—to happy days and nights, but fruitful and instructive days and nights. A point of great interest will be given not merely to the Treasury team but also to the Government Whips by the fact that it will be upon the exposition of the monetary or economic theory of his Budget that the ability of the Chancellor of the Exchequer to defend it in those days and nights will be found to rest.

7.5 p.m.

Mr. Hugh Fraser: It is a great pleasure, Mr. Deputy Speaker, to follow my right hon. Friend the Member for Down, South (Mr. Powell). I think that when the Chancellor of the Excheqeuer comes to make his final judgment of these matters it will be seen that one of the things which have been worrying him is the reaction of the markets and exchanges to what we are doing here.
It must be particularly galling to those on the Treasury Bench, who have pursued, on the whole, a fairly monetarist policy—and a policy which has been approved by the IMF—to see, nevertheless, that in the last three months sterling has fallen by 10 per cent. while the franc has gone up by 3 per cent. against the basket of currencies. This reveals something of some importance, especially when we note that the franc went up today after Mr. Barre had announced yesterday measures which would undoubtedly increase the cost of living to the French public.
There is a judgment being made in the world, and it is a judgment that we should perhaps make here. It appears to be made, not on the basis of the figures or statistics which are available, but on the way in which the general economy of the country is going and whether there is confidence in its currency and in its ability to borrow overseas.
I believe that there are some far deeper matters which should be considered by the House before it goes into Committee to discuss the elements of the Budget. I am no economist—unlike some hon. Members who are either would-be Chancellors, potential Chancellors, or ex-Chancellors—but the point which strikes home to the ordinary person in this country involved in business is that we have seen over the years a terrifying decline in the economic strength of this country. This is very sad, and it has been going on for the last eight or 10 years. The effects of it are such that the sort of talk that we had from the hon. Member for Glasgow, Garscadden (Mr. Dewar) about further expenditure creates a cloud-cuckoo land.
There is no doubt that the real wealth of this country has declined, and it is against this background that the propositions put forward by my right hon. and

learned Friend the Member for Surrey, East (Sir G. Howe) this afternoon must be judged.
My right hon. Friend the Member for Down, South has spoken about the borrowing requirement and how it falls and how the Government propose either to have a real stimulus to the economy or to negative that stimulus by borrowing from the public the amount of money which is put into the economy.
I believe that there is now a necessity for a complete change in our approach to the economy. Over the last few years, there have been all sorts of impediments to the economy. Perhaps the worst and the most disastrous has been the attempt by the Government to have an incomes policy, a control of dividends, and a control of prices.
I remember saying to my right hon. Friend the Member for Sidcup (Mr. Heath), when he brought in his compulsory incomes policy, "By doing this you are institutionalising inflation." If one looks at the figures over the last few years one will see that we have had the highest rate of inflation in the Western world. That is why the strategy in this Budget is questionable. Its strategy is to try to move into a fourth phase of incomes policy with the trade unions. I do not believe that that will work. It is already breaking down. One has seen the anomalies which are creeping in. One has seen what happened to the Armed Forces. One has today seen what has happened to the medical profession. It has been recommended that it should have a 28 per cent. increase to bring it into line. Tonight the power workers have been offered 18 per cent. The whole of this policy of trying to control the economy is breaking down. One must return to a far freer system.
That is what the Conservative Party would aim to do. What it has said today is an earnest of its intention so to do. As my right hon. Friend the Member for Chipping Barnet (Mr. Maudling) said, we are faced with a sort of Luddite attitude which has reduced our production and productivity to about 50 per cent. of that of our competitors. We are surrounded by problems to the economy—the problem of a wages and incomes policy, the problem of a compulsory price mechanism, and the problem of the


infringement of far too high Government borrowing on capital markets.
These things must be broken out of. They can be broken out of only by rewarding the successful. It may sound an unfortunate and unpleasant thing to say, but in every society there are certain people who are motivated by the pursuit of success, the pursuit of money, or the pursuit of power. There are such elements in any society, whether it be the Stakhanovite in the Soviet Union, whether it be an arbeit dienst gruppenfuhrer in the Nazi system, whether it is the go-getter in the American system, or whether it be the skilled man, the manager, the risk-taker or even the gambler in this country. Those are the people who make an economy move. That is why the Chancellor has spread his gifts far too wide. The margarine has been spread across the board. There needs to be far more concentration on the growth points of the economy and on individuals who will make the economy grow.
If one looks at any company report today, or deals in any way with industry, one sees an immense shortage of skilled men. There is a tremendous shortage of skilled men in engineering and a considerable shortage of good management. Managers go overseas and fewer people are prepared to take entreprenurial risks. That is why, looking at the picture as a whole. I believe that changes—changes away from a society which year after year piles up Government spending—must take place. What my right hon. and learned Friend the Member for Surrey, East is proposing is a mere token and gesture to show what the Conservative Party will do when it is returned to office.
Unfortunately, the Liberal Party has fallen into precisely the same attitude as the Labour Party over the last few years. It believes in a managed society, in an incomes policy and in controlled prices. By its own admissions all it is doing is trying to throw a few more monkey-nuts to the prisoners behind the bars.
We Conservatives propose a change in the whole basis of taxation. Of course, what we are proposing is taking a risk. It is taking a risk to give a pump priming to those elements in society which can start making the economy move once more. I remind the Financial Secretary

of what happened to the French economy. In spite of their difficulties, the value of the franc has gone up while the value of the pound has gone down. In spite of their difficulties—having the weakest currency and being the most difficult country in Europe—their production over the last two years has gone up by 4½ per cent. a year while ours has remained at what it was during the three-day week.
Therefore, what the Conservative Party is doing is to make a gesture as an earnest of what it proposes to do. That is to give an additional stimulus to an economy which is foundering, both as seen from overseas and, certainly, as seen from the point of view of the unemployed and those who wish to get on with it inside our own land.

7.16 p.m.

Mr. Ian Wrigglesworth: I only wish that it were quite as simple as the right hon. Member for Stafford and Stone (Mr. Fraser) seemed to suggest. I was more struck by the arguments, put forward with usual clarity and lucidity, by the right hon. Member for Down, South (Mr. Powell). I am sorry that I missed the earlier part of his speech, because I wanted to make a similar point about the uncertainty of the impact of the stimulus and the uncertainty of what the public sector borrowing requirement would be.
I do not know whether the right hon. Gentleman made the point that the forecast of the borrowing requirement was so wildly wrong in the last year that we needed only £5·7 billion as against a forecast of £8·4 billion. When one is dealing with margins of error which are that great, it is helpful to remind oneself that £500 million here and £500 million there, while very worrying in some respects, are not necessarily a matter of major catastrophe. It needs to be seen in that light, especially with regard to taking action and making judgments about what Conservative Members might do during the passage of the Finance Bill in the coming weeks.
My feeling before the Budget was that the existence of slow growth in output, high unemployment and spare productive capacity called for an expansionary Budget. But I felt that the required fiscal stimulus had to be cautious or it would


be self-defeating. There is evidence in the performance of the economy over recent years to show that one should be cautious in the amount of stimulus that should be given.
Massive reflation, such as the £4·7 billion suggested by the home policy committee of the Labour Party, would in my view have resulted in an upsurge of imports, accentuated if home supply was unable to meet the demand because of constraints—particularly skilled labour constraints—which despite North Sea oil could not be financed. In addition, if too fast a fiscal stimulus were given, it would have led to the monetary expansion which would have led to a loss of confidence and renewed inflation. These effects would have led to lower sustainable growth and output and, except in the very short term, would have raised unemployment.
Basically, the sluggish growth in world trade means that we simply cannot afford to make a unilateral bid for massive growth. Therefore, as the Prime Minister and the Chancellor are doing at present, we needed to see a co-ordinated expansion of world trade to undo the deflationary effect of the OPEC countries' large surpluses. Although inflation is coming down, it is still higher than that of most of our competitors, and it must continue to fall if competitiveness and growth are to improve. This means, in my view, exercising restraint in wage bargaining this year, and some firm monetary control.

Dr. Bray: My hon. Friend says that we cannot progress faster with inflation in the present state of world trade. Has he looked at the Odling-Smee working paper and the much fuller background that he can get on that from the Library about the very powerful effect that an aggressive exchange rate policy would have?

Mr. Wrigglesworth: I heard some of my hon. Friend's speech. I have not read the paper to which be has referred. I have looked at what has happened to our economy and other economies over the past few years, and I came to the conclusion that the dash for growth theory and the exchange rate changes that my hon. Friend was suggesting would not be possible. I do not think that the sort of policies that he seemed to be advocating took account of the reaction of partners

overseas and in the Common Market, or the institutional framework within which world trade and Western world monetary systems operate. Nor did it take account of the reaction to the sort of unilateral proposals that he was suggesting, because I believe that this reaction would defeat what he was trying to achieve—the increase in world trade and a decrease in unemployment.
I was outlining my views on what the Budget should do and was talking before the Budget in terms of a fiscal stimulus of around £2 billion. I thought that this £2 billion should have taken the form of increases in tax allowances and some increases in public expenditure. I felt that any excess over the £2 billion should be made good by restoring the real value of excise duties and by standardising VAT.
That brings me to the proposals of the Liberal Party and the position of the official Opposition.

Dr. Bray: Will my hon. Friend take the point that, in reflecting the conventional wisdom in the City, he has also an obligation, as a member of the Labour Party, to look more critically at the evidence than he has done?

Mr. Wrigglesworth: I shall study what my hon. Friend said and the paper in the Library that he recommended. I have studied what the vast majority of those who take an interest in financial and economic matters within the Labour Party usually study. I have examined the papers prepared by Transport House, the Treasury and others, and I have kept abreast of the articles in various journals and newspapers. If I change my view, I shall make it known to the House after I have studied the paper that my hon. Friend has recommended.
At present I must make my judgment on the experience of this country's economy over the past four or five years. I also take account of what has happened in other countries in recent years and the current factors affecting our position.
I was slightly disappointed that the Chancellor did not concentrate more of the reduction of taxation on the lower tax thresholds, and on tax allowances. It is interesting to note that, although the reduced rate band has done a great deal to reduce the burden on the lower paid, and, combined with measures like child


benefit and school meals, has done an enormous amount to help the poor, people are still being taxed at a very low level of income.
Admittedly people are not being taxed as much as they were, but a single person earning £25 a week still has to pay £2·32 in income tax after the Budget. An income of £25 is not magnificent in this day and age, yet the recipient still has to pay more than £2 a week tax. Clearly this is not satisfactory. A married couple earning £35 a week are paying £2·39 in tax, which is also unsatisfactory, considering how much £35 is worth today.
I am disappointed that more was not concentrated at that end of the income scale, although I recognise the problems in doing this. I concede some of the arguments the Chancellor has put for the reduced rate band which is giving a broader spread of relief among a wider range of people at that level. But I am concerned particularly about getting people out of tax altogether at the bottom level, so that there is no overlap with the supplementary benefit level. I want to see a clear gap between the benefit level and the level at which tax begins to bite. I hope that it will be possible soon to increase these thresholds even more than has been done to date.
The Liberal Party has suggested some fairly substantial switches from direct taxation to indirect taxation. I would not be averse to seeing a modest increase in indirect tax, including the change to a 10 per cent. standardised rate of VAT.
The Government must recognise that they can hold down excise duties and indirect taxes only for a certain length of time, otherwise the level of these taxes in relation to inflation will get comparatively lower and the prices of the goods attracting these duties will become comparatively cheaper. In fact, that is already happening.
It staggers me that the Liberal Party, while wanting to go in that direction, is determined to exclude petroleum, of all things, from that policy. It is beyond me why a party that is keen on maintaining fossil fuels and on opposing, or at least being suspicious of, the development of nuclear energy should want to keep the cost of petrol down. When, in addition, Liberals talk of switching to

indirect taxes why they should specifically exclude petrol is also beyond me.
The other proposal that the Liberals have made is to increase the national insurance surcharge. The same objection applies. I would not, in the long term, be opposed to increasing the level of contributions, but if that is to be done at present it will make the cost of employed labour that much greater at a time when there are 1·4 million people unemployed. It hardly seems to be a wise course to be taking at this juncture. Some of the increased cost would then have to be passed on by firms and by institutions as increased prices. I find that proposal rather puzzling. In the long term it may be acceptable, but at present it does not seem to be a wise course on which to be embarking.
The hon. Member for Cornwall, North (Mr. Pardoe) said that he would deal with the criticisms that have been made of the Liberal proposals. However, he did not deal with the most important criticism, namely, that of the Liberal Party's suggestion that we should move to indirect taxation. Such a move would increases prices at a time when there has been a sustained level of price increases, when there is obviously a need to get people used to the idea that prices will not be continually rising, when there is a need to reduce people's expectations of rising prices, and when it is crucial that we should have a successful incomes policy and incomes restraint.
Although the hon. Gentleman said that the impact of the proposals put forward by his party would not be as great as some have said, he did not answer the point. It is a worrying matter even for those who believe that some modest increase in direct taxation would have been acceptable.
My right hon. Friend the Chancellor of the Exchequer could have moved on the 10 per cent. rate of VAT. I appreciate that some of my hon. Friends say that VAT is regressive, and I am prepared to accept that argument to some extent. However, some of my hon. Friends tend to forget that there is a zero rate that applies to the great majority of goods and products that are considered sensitive, such as children's clothing. Although it would mean that on some luxury items the VAT rate would move from 12½ per


cent. to 10 per cent., the worst abuses would not be in that area. I have in mind the sort of abuses that would be offensive if people were having to pay increased prices for food or school clothing. If my right hon. Friend had introduced the 10 per cent. rate, it would have given him more flexibility and the possibility of introducing increases in tax allowances at the bottom end of the scale to overcome the poverty trap that I should like to see.
In the light of those considerations, I should not be averse, if the need should arise, for my right hon. Friend to make such a move before the Bill completes its passage through the House. I assume that again the Chancellor will not be making his final Budget judgment until about the middle of July. I think that it was on 15th July 1977 that he gave what might be called his final Budget judgment, when he announced that the 2p decrease in the standard rate of tax would be changed and that there would be a decrease of only 1p as a result of the changes that had been made to the Bill by my hon. Friends the Members for Birmingham, Perry Barr (Mr. Rooker) and Coventry, South-West (Mrs. Wise). I assume that that is what will happen this year if any changes are made.
Should my right hon. Friend have to take such action, I personally would not be averse to a change in the VAT rate to 10 per cent. to give him the additional leeway that is required. I do not think that he should increase the public sector borrowing requirement or the net fiscal stimulus any more than he has done.
We were saying prior to the Budget that a stimulus of about £2 billion was right. My right hon. Friend decided to go along with the CBI figure of £2½ billion. In the light of our experience over the past two or three years, it is better to be cautious and to use the regulator to expand at a later stage rather than to go for a dash for growth, with increased inflation and reduced confidence leading only to an increase in unemployment and not the decrease that we all want to see.
I make one special plea which perhaps is a traditional one from Co-operative sponsored Members of Parliament. None the less, it is made seriously and sincerely. As my right hon. Friend the Minister of State, Treasury will know, the co-operative movement has been suggesting for some

time that as the share capital of industrial and provident societies comes from small savers, and as they are non-profit making bodies, there should be tax relief on the first £5 of share interest for such industrial and provident societies to encourage more capital and to recognise the special place that such bodies have in the same way as building societies and similar institutions.
There was an additional reason for our hoping that the Chancellor would take action on the tax relief on share interest this year. That is because the Government have announced—the Bill is well on its way through the House—that they are to establish a Co-operative Development Agency. They feel that there is a role for co-operative societies, and not a dissimilar role in many respects to that role of small businesses, which have now been espoused by one and all as being the creators of employment. We hope that the agency will bring about the establishment of many new businesses and co-ownership enterprises, which some of us strongly support.
The Government having embraced the agency proposal, which some of us have been urging for a long time, we hoped that the recognition of co-operative principles would be extended to give tax relief on the first £5 of share interest as an additional stimulus to the establishment of new societies and new enterprises. I ask the Chancellor and his colleagues in the Treasury to think about the matter again. If I am a member of the Committee that is to consider the Finance Bill, I shall endeavour to raise the matter. I hope that my right hon. Friend will give it a sympathetic hearing and take action. It would cost very little in revenue if it were introduced.
Some adjustments could be made in the Budget without us getting into too histrionic a state. We have to keep in perspective even the proposals made by the Conservatives. As I have said, the forecast public sector borrowing requirement of £8·4 million turned out to be an actual requirement of £5·7 million. I do not think that there need be any panic talk about elections. There is no need to panic if such measures go through. It would be unwelcome to extend the borrowing requirement any more as the reaction of the market seemed to indicate on the day after the Budget. On the


other hand, by July the situation will be much clearer. At that stage the Chancellor will be able to make his final judgment without having to have a General Election to help him to do so.

7.40 p.m.

Mr. William Clark: The hon. Member for Thornaby (Mr. Wrigglesworth) will certainly get the support of the Opposition if he introduces an amendment which helps small savers. I am sure that the cost of his suggestion would be infinitesimal. He will find that many Opposition Members are absolutely convinced that savings in all forms should be encouraged by the Government.
It was interesting to hear the hon. Gentleman talk about a flat 10 per cent. VAT. Alas, he will not be able to move such an amendment in Committee on the Bill, because it will be out of order. But if somehow he can engineer, persuade or cajole his right hon. Friends on the Front Bench to introduce a 10 per cent. VAT, he will have tremendous support from us. Perhaps I might come later to how we should use the £700 million extra revenue that it would produce.
I think that we should look at the overall effect of this, the Chancellor's 13th Budget. The background, as one hon. Gentleman said, has been low production—practically stagnant—high unemployment and high prices. The Government are taking credit to themselves now by saying "The rate of inflation is coming down. It is only 9·1 per cent." But that is on top of the 20 per cent., the 15 per cent. and the 18 per cent. that we have had—a total of about 95 per cent. inflation. Although it is a good sign that inflation is coming down, the Government should not get too euphoric by saying that it is now 9·1 per cent. and we are doing very well. As the hon. Member for Thornaby said, we still have a much higher inflation rate than most of our competitors. That cannot be right and it cannot be good for the economy.
I always thought that the Chancellor, of all Members in this House, was consistent. His consistency is beyond reproach. For each of the 13 Budgets that he has introduced, he has promised that he has got it right this time. He does not change his tune one scrap. The previous 12 Budgets should not have

given anybody any confidence that he has necessarily got it right this time.
My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) has already given a token of what the Conservative Government will do regarding tax cuts in their first Budget. It is not within the competence of any Opposition party to raise taxes. That is out of order. Consequently, we have said that, without increasing taxes, cuts can be made in public expenditure. I think that my right hon. and learned Friend spelled them out very clearly, and I shall not rehearse them. He suggested some cuts in public expenditure adding up to £485 million in a year.
There is one matter that the Government—this applies to all Governments—should look at. With public expenditure at about £67,000 million a year, it should not be beyond the wit of any Chancellor to get a 1 per cent. reduction. My right hon. and learned Friend suggested a reduction of only three-quarters of 1 per cent. I should have thought that, with a total Budget of £67,000 million a year, it is within the Government's competence to cut £500 million off that and use that money in the ways suggested by my right hon. and learned Friend.
If the Government would accept a 10 per cent. flat rate for VAT, there would be £700 million extra in the kitty. Obviously, that would not affect the public borrowing requirement. One thing should be said about VAT. I hope that the Minister will look into this matter, because I shall cerainly be pursuing it. I think that the general public are alarmed by Press stories about the antics of some VAT officers. This matter should be looked at very carefully. I noticed today—no doubt the Minister did, too—that in another place Lord Houghton raised the question of the powers of VAT officers to search and so on. These alarming phenomena of our society need looking at. I am not suggesting that the Inland Revenue or the Customs should not collect every penny of VAT that is due. However, some Press reports that we read are particularly alarming by their references to the kind of strong-arm tactics of some VAT officers.
Our economy is suffering from many disincentives. No matter where we look in society, there are restrictions and disincentives. Allied to the Finance Bill is


the fact that there is now a kind of phobia in some sections of business for perks for employees. That is because our rate of tax is far too high. It does not matter what comparison one makes. I am speaking now of direct taxation. We are the most heavily taxed nation in Europe, particularly on the incidence of direct taxation. Our marginal rates are crazy and absolutely ludicrous.
Our marginal tax rate is way above that of other EEC countries. We are all concerned that there should be harmonisation within the Community so that one member State does not have an advantage over another. This country, with its high rate of taxation, is working under an unfair disadvantage vis-à-vis the French, the Germans, the Italians or whoever. I think that the Government should consider this matter.
My right hon. Friend the Member for Stafford and Stone (Mr. Fraser) said the only way to increase our standard of living is to increase production and to create more wealth. It is silly and uneconomic to penalise the wealth creators. But that is what the Chancellor has done in his 13 Budgets.
As the hon. Member for Thornaby said, a married man earning £30 a week does not pay any tax. On the next £15 he pays 25 per cent. For the rest above that amount he pays 34 per cent. until he gets up to £7,000 a year. The average married man with the average industrial wage of about £80 a week pays £803 in tax. That is after the Budget and with the reduced rate band. That is £16 a week—a fifth of his income. I am convinced that that is a disincentive. It is frustrating to the worker, and it is certainly frustrating higher up the scale for the managerial and executive types on whom any economy must depend.
Obviously, the Opposition cannot necessarily change all the taxes that the Chancellor has introduced, but he could. However, I think that it is high time that the Government looked at the top rate of taxation. The tranches have been eased slightly by the Finance Bill, but we cannot afford a top rate of 83 per cent. It is ludicrous and it is a disincentive. As has been said, many medical men, entrepreneurs, pop stars and so on are going abroad because they cannot afford to live in this country with its penal taxation.
Although it might be a pipe dream, I should like to support the suggestion made by the hon. Member for Thornaby to cut the top rate of tax and pay for it with the £700 million that one might get from a 10 per cent. VAT rate. To cut the top rate to 60 per cent. would cost about £300 million. That would leave £400 million from the £700 million to help at the lower level by 1p or 2p in the pound reduction or an increase in allowances. I am convinced that as a nation we shall not achieve the extra production and effort that is needed if managers, executive workers and the wealth creators are frustrated.
The frustration does not apply only to those in the higher tax band. Many of the tax allowances are not index-linked. For example, the limit on mortgage interest allowances is £25,000. This limit was fixed a few years ago. It is staggering that to achieve the same purchasing power one would have to have a limit of £41,200. If one is made redundant one can receive £5,000. That figure was fixed some time ago. To give the same purchasing power that sum should now be £19,000. Other examples of this loss of value are capital gains tax and the gifts that one can make under capital gains tax rules. Apart from the exemptions in the Bill one can make a gift of £100. That sum should now be increased to £323 to be worth the same. Apart from the exemptions in the Bill chattels might be worth up to £1,000. That sum should now be £3,227. To put these matters right would not cost the Exchequer much. But the psychological effect would be tremendous to the middle-band worker.
We have not spoken much today about capital gains tax. I and many of my hon. Friends have always maintained that this is a tax on inflation. The Chancellor of the Exchequer has done something through the exemption limit, but this tax should be tapered off so that the longer one holds an investment the less tax one pays upon it, until after a while, no tax is payable on it. Everyone knows that one might have bought £1,000 worth of shares some years ago which one could sell for £2,500 today. That is a paper profit of £1,500. But that is ludicrous because the purchasing power of the £2,500 is now less than the original £1,000.
The Chancellor has done something about investment surcharge but it is a confidence trick on savers in particular. The exemption limit has been lifted although it is not yet at the level of £2,000 at which we left it. I have never understood the logic of taxing two men in different ways. A man who happens to work for a company where he enjoys the benefit of a pension scheme is not subjected to a surcharge on his pension when he retires. However, the man who has saved up during his working life because he did not work for a firm that operated a pension scheme is subjected to the surcharge. As the Chief Secretary said, the exemption limit is £30,000. To impose an investment surcharge on a man who has saved for his retirement and not impose it upon a man who receives a pension is illogical, unfair and unjust, I do not suggest that both should pay. I suggest that neither should pay this surcharge.
With the increase in the limit of corporation tax the Chancellor has gone some way to help small businesses. There are about 400,000 active small businesses in this country. With a little encouragement I am sure that they could make a tremendous indent on the unemployment figures. Apart from the financial aspect a problem is caused by the Employment Protection Act. It is an inhibiting factor on small business men taking on extra employees. In addition, small business men are heavily taxed. They are more highly taxed as individuals than their counterparts in France or Germany. A reduction in the top rate would help small business men.
Many small businesses depend on outsiders for some of their finance. The dividend limitation is mother inhibiting factor. I am sorry that the Chief Secretary was not more forthcoming after being asked three or four times about what is to happen about this in July when the present period runs out.
I should like to bring to the Minister's attention a small but important issue. Over many years we have had good voluntary services. All hon. Members want to see the WVS, Sea Rescue service, lifeboat men, the Specials, the TA and other such organisations given encouragement and help. The Treasuries of successive Governments have been mean

towards these voluntary services. The voluntary services save the taxpayer money. It is difficult to quantify how much they save but they should be encouraged.
A lifeboat man, for example, is a volunteer. He lives in his village, the siren sounds and out he goes with his colleagues to effect a rescue. That man will receive £6 or £7 for this. Over a year he will probably receive about £100. That sum is added to his income and he pays income tax on it. How mean can one get? It would not cost the Exchequer much to abolish that and it would be an encouragement to the voluntary services.
I turn to the borrowing requirement. The hon. Member for Thornaby asked "What is another £500 million?" He said that we should not get too excited about it and that we should not have an election about it. But it is a lot of money. One of the things that upset the City—and I mean not the speculators but the financial world—was the large borrowing requirement. This was why the Budget did not receive a good reception. I am convinced that we experienced the weakening of sterling because of this lack of confidence.

Mr. Wrigglesworth: I must make it clear that I do not think that £500 million is nothing about which to be troubled. What I was encouraging the Treasury Bench to do was to refrain from getting as panicky as did the City about the public sector borrowing requirement figures. I pointed out that the forecasts had not been shown to be all that accurate in the past and I went on to say that the money required could be raised without doing tremendous damage to the money supply.

Mr. Clark: I accept that. I do not think that it can be said that the City has panicked. It is not fair to accuse it of panicking. Let us not think in billions of pounds, because we get a bit lost. In 1977–78 we were, as a country, borrowing £15 million a day or, putting it another way, we were, as a nation, overspending by £15 million a day. This year it is envisaged that we shall be overspending by £23 million a day. This is the borrowing requirement.

The Minister of State, Treasury (Mr. Denzil Davies): Is the hon. Gentleman


equating borrowing with overspending? I cannot see that there is an exact corollary.

Mr. Clark: Surely one borrows only to spend. The borrowing requirement is £23 million per day now and it was £15 million a day last year. This in itself is bound to give the City a lack of confidence. We cannot go on borrowing at this rate, particularly with our low production.

Mr. Wrigglesworth: I hope that the hon. Member will forgive me for interrupting yet again, but this is an important point. If the City were anxious, as the hon. Gentleman suggests, should it not have paid more attention to the new controls on money supply which the Chancellor introduced—the six-month rolling targets and so on?

Mr. Clark: We have to be careful when we talk about the City. The City is not just one person. It is made up of 20 or 30 different markets—the commodity markets, the tin market, the metal exchange and all the rest. It is made up of many individuals operating in different facets of business. The people in the City are not playing shove-ha'penny with pound notes or with foreign currency. In the City there are all the head offices of manufacturing industry. It is the assessment of individuals which has brought about this lack of confidence, not the act of one part of the City.
In my view the borrowing requirement is far too high. We have had 13 Budgets. The Government are claiming credit for helping this, reducing taxation here, helping a business man there, and so on. What they do not realise is that most of the tax troubles that exist have been imposed by them. If the Chancellor wanted to get back to the 1974 tax levels he would have had to reduce taxation by £5,000 million rather than £2,500 million.
As a nation we are paying more tax today than we did in 1974. My assessment of the Budget and the Finance Bill is that I doubt whether the Chancellor has got it right. He has missed the boat and he cannot undo the untold damage that has been done to incentives. Until he gets out and until there is a proper Government we shall not have the much-needed improvement in the economy. While it might have been very funny for the Chancellor to say that he would make

people howl with anguish as a result of his tax measures, it is not those people who are howling but the country generally.

8.5 p.m.

Mr. Dafydd Wigley: I shall not take up the argument of the hon. Member for Croydon, South (Mr. Clark) too closely, except to say, on the question of our borrowing requirement, that what is important is the way in which the money is being used. If it is used in a way which will generate productive work in the longer term it does not matter too much. All manufacturing industries depend, in the first place, on borrowing and then on using the money effectively. The question is how the money is being used by the Government. The debate is about the priorities exercised in using the money at our disposal, whether in the public sector or private sector.
Due to the lateness of the hour, I shall not go into great detail on the Budget because I had an opportunity of doing that during the Budget debate. I should like to follow one or two themes and come to the central question to which many hon. Members have referred, namely, taxation policy. I got the impression earlier today, from several hon. Members, that the approach to the Budget was mechanistic. Listening to the hon. Member for Motherwell and Wishaw (Dr. Bray) describing what appeared to be a beautiful economic model, I was not convinced that it was a model which necessarily contained the required motivation. The right hon. Member for Chipping Barnet (Mr. Maudling) had the answer, he said, through a policy of continuous growth. I question fundamentally whether continuous growth is feasible, at least in the longer term, with constraints on energy and materials.
The basic question facing any Government concerns motivation at all levels within our community—the motivation of those employed in the most humble factory jobs and the motivation of those in the higher echelons of industry who should be taking a lead in establishing employment.
Motivation is not a linear function. It is not part of a continuum and, by taking certain steps, there will be a quantified result. It depends on leadership and upon triggering levels. This is what we ought to be considering as a background to


our debate. The hon. Member for Motherwell and Wishaw was right to say that the central problem must be unemployment. That is the central worry in Wales, where it went up again last month by another 1,000. While it has been coming down in the United Kingdom generally in the past six months, unemployment in Wales has been going up virtually continuously. Future prospects are even bleaker as a result of recently announced redundancies.
The question arises whether unemployment is inevitable. I find that difficult to believe, particularly when I look around at all the work that needs to be done in our community. There are roads needing to be built and houses requiring repair. There is squalor around many of our old industrial areas. There is all around us work that needs to be done. Yet in Wales 90,000 people and in the United Kingdom as a whole 1½ million people are out of work. It is the incapability of a system of government or of economics to bring these two problems together which should form the central core of our thinking.
If unemployment is not inevitable, we must find the mechanisms for dealing with it. If there is some part of it that is inevitable, it is a fair question whether we should be applying our minds to earlier retiring ages so that those who come out of the employment pool are those who will be least socially affected. We must reach a balance on this. The alternative of having everyone in employment at the current level of the gross domestic product is an inevitable lowering in the average level of real income. That may not be acceptable. It may be the price that we have to pay to bring everyone into the pool of work. If we were to have a higher standard of living coupled with lower unemployment, it must mean greater output and greater productivity, which in itself must mean people losing jobs for an interim period.
There is a problem of leadership here, in which the Government and the trade unions will have to play a close part We hear a lot about the balance between direct and indirect taxation. As I said in the Budget debate, there is no necessary guarantee that by switching funds from the public to the private sector or vice versa we shall create jobs. We may

create more, we may create fewer. It depends on the nature of the change and the other implications to which the right hon. Member for Down, South (Mr. Powell) referred.
It may well be that the direct taxation levels are creating a disincentive. From my own surgeries and from meeting people at their places of work, I get the impression that there is a disincentive. People who earn a low level of income ask "Why am I being taxed so heavily?" If that is the case, even if it does not mean that they have stopped working it affects their attitude to work.
There might be a case for raising the motivation, for looking at the possibility of switching a certain amount from direct to indirect taxation. By and large, I prefer direct taxation because it is more progressive, but if we were to get to the stage where direct taxation was having that negative effect we should have to face the consequences.
Given the choice—and it is one of priorities—of having some money to spend on reducing taxation levels, my colleagues and I would prefer to see the funds being used to bring about a further increase in the taxation threshold to take people out of the taxation net. We should prefer to see the married allowance going up by £200 and the single allowance by £100. At next best we should like to see the intermediate tax band lowered from 25 per cent. to 22 per cent. or 20 per cent., or an increase in the band width, with the figure of £750 going up to £1,000. It would only be as the fourth favoured option that we would say that the standard rate should be reduced.
Given the way in which the Committee is likely to take its business and given also the likelihood that we shall not be on the Committee, the only option on which we are likely to have a chance to vote is that of reducing the standard rate. To that extent, although it is only our fourth preferred option, we shall support a proposal to reduce the standard rate. We much prefer to see this money being used to raise the threshold at which people are taxed and thereby pull them out of the taxation net.
I hope that if we are to have changes in income tax levels we can try to contain ourselves to doing this once a year, because the mind boggles at the bureaucracy that is generated when there are


three or four changes in taxation levels within a year. I can only imagine what the cost is of doing that. I have a Question in the pipeline, and I look forward to seeing the answer when it eventually comes.
I accept the argument about the need for an incentive to get people to start enterprises, but I am not convinced that such an incentive is best found by reducing the 83 per cent. level to 60 per cent. or to any other level. Those whom we have to trigger to get them to start enterprises are the young people who are leaving colleges or universities. Perhaps one should bear in mind the PhDs that one sees in America starting up so many companies.
People taking such risks at an early age are not on income levels that will be affected by a reduction from 83 per cent. to 60 per cent. What they need is an immediate benefit at the lower rate at which they will start to pay tax, and I should like to see an innovation such as a tax holiday for two, three, four or five years, with up to a maximum of £5.000 for somebody starting up an enterprise on his own. It should be something that can be obtained only once in the lifetime of such a person. That will encourage him to take a step that he is not taking now, and that could be of benefit to society as a whole.
Those matters which we now stress are ones that can help us to overcome the unemployment problem, which we see in Wales as the biggest problem facing us.

8.13 p.m.

Mrs. Audrey Wise: It has been suggested in this debate that acceptance of this Finance Bill necessarily means acceptance of the Government's economic strategy. I deny that. I think that it is possible and necessary to distinguish very carefully between those two things. I accept this Finance Bill and regard it as immeasurably better than the Finance Bill of last year. The pattern of tax cuts is about right, and I do not quarrel with the scale of tax cuts.
My criticisms of the economic strategy of the Government as shown in the Budget as a whole, and in other things, are different. I do not propose to dwell on them, but as so many hon. Members have talked about the economoic strategy at large I shall say a few words about it.
The economic strategy as a whole must be judged by looking at four factors. The first is the large-scale level of unemployment. The second is the scale of unmet needs of the population. The third is the need for a more democratic society, especially industrially. The fourth is the need to protect our environment and ensure that our resources, especially the irreplacable ones, are properly used. I regret that, judged against the yardstick of those four factors, the Government's economic strategy falls far short of what is required.
The criticisms directed at the Government's economic strategy by hon. Gentlemen opposite are piffling and trivial in the extreme, but justifiable criticisms can be made by the Labour movement. I accept the scale of the tax cuts, but I should have liked to see, in addition, changing levels of public expenditure. I am pleased that at least we are moving in the right direction, but the advances that have been made are inadequate. It seems extraordinary to have an economic strategy that accepts unemployment alongside unmet need. For instance, building workers are unemployed at a time when people are without proper housing or are in houses that are in need of repair. Again, school classes are oversized at a time when there are many unemployed teachers.
To find those factors side by side is monstrous, and no Socialist economy, no economy moving even feebly in a Socialist direction, could possibly tolerate such a situation. Measured against that state of affairs the Chancellor's strategy is woefully inadequate. As I said, I am glad that my right hon. Friend is at least pointing in the right direction on public expenditure, but it is time to take some more firm steps.
Industrial democracy is extremely important in an economic context. It has been my experience since coming to this House that the relationship between a Labour Government and industry is similar in essential ways, to the relationship of any Government—including Conservative Governments—with industry.
What I have in mind is shown clearly by the words used by Conservative Members. When they refer to industry, they always mean the management. By that I mean not the technical management but the top management and especially the


financial management. When someone from this side of the House says "What about the workers?", Conservative Members take a great imaginative leap forward and concede that the workers also have a place in the scheme of things.
It is unfortunate that the Labour Government, although they have taken steps to bring about a close working relationship with the trade union machinery—and that is valuable—do not seem to have taken any step at all in the direction of having a close working relationship with workers as part of the productive process—with our side of industry. The Government have a relationship with trade unions representing workers as consumers and as earners, but they do not have a relationship with the people on the shop floor as part of the productive process. They do not take their views into account in the context of production decisions.
What I have in mind—and hon. Members will not be surprised at this—is the lamentable lack of support for interest in, and relationship with the initiatives being taken by some workers at their places of work through their combined shop stewards committees. I am thinking of the Lucas aerospace workers' combined committee, the Vickers combine committee, and so on. Until the Government have a direct relationship with our side of industry in connection with the production decisions that it wants made we shall not take even shaky steps towards Socialism.
Measured against that requirement the Budget gets nowhere, and the Government's practices get nowhere. Nor do they rate very highly in relation to the proper use of resources and the proper protection of the environment. Many hon. Members on both sides of the House above and below the Gangways take a primitive view of economic growth. We hear a great deal about the need for growth and it is always assumed that any kind of growth is of itself desirable.
When Chancellors are applying stimuli to or injecting, or whatever is the appropriate term, into the economy, they should consider the sort of growth that is likely to be stimulated. It seems that we do not start to do this, either.
As an economic strategy, the Budget is disappointing, but the Finance Bill is

an immeasurable improvement on last year and well worth defending against the predatory attacks about to be made by Conservative Members. I found the speeches of Conservative Members reasonably interesting. The right hon. Member for Stafford and Stone (Mr. Fraser) frankly said that the Chancellor had spread his gifts too widely. He suggested that it would be proper to concentrate them much more closely at the top of the financial tree.
Illuminating suggestions were made by the hon. Member for Croydon, South (Mr. Clark), who speculated on the best way of spending the £700 million which would be raised if VAT were standardised at 10 per cent. He suggested that £300 million should be spent on cutting the top rate of income tax to 60 per cent. He said that that would increase everybody's incentives enormously.
It is remarkable that Conservative Members do not seem to grasp the simple arithmetical fact that, under the Budget, the top rate of tax is not payable on incomes of less than £23,000. Indeed, that is too generous an estimate because it does not take into account that it is precisely at those levels of income that all sorts of other tax allowances can be achieved, such as on insurance premiums and mortgages.
The same hon. Gentleman complained that mortgage interest relief goes up to only £25,000 per house, but he ignored the fact that this is still substantially above the average price of a house, even in London. Instead of moaning about this matter, those receiving mortgage interest relief on that kind of figure and on their high marginal rates should be quiet and modest and should not focus too much attention on the fact that the easiest way of saving about £100 million would be to allow the mortgage interest relief only at the standard rate instead of at the highest marginal rates.
If we are looking for money to give to families or to people on low incomes, here is a nice, handy place at which we could start. The population at large would welcome that, because the population at large does not have mortgages of £25,000 or incomes of more than £23,000.
There are some interesting figures relating to Northern Ireland. I wonder how hon. Gentlemen representing Northern Ireland will regard the fixation of


Members on the Benches around them with the higher income groups. I have noticed with interest, on reading Hansard, that in Northern Ireland there are only 4,500 incomes which exceed £10,000—and that is taking the husband and wife jointly. Hon. Members representing Northern Ireland will find it easier to focus their attention on people with lower incomes than will other hon. Gentlemen.

Mr. Powell: The hon. Lady has overlooked the fact that there are many farmers in Northern Ireland.

Mrs. Wise: I have not overlooked that. It reinforces my view that they may prefer the pattern of tax cuts in this Budget, particularly as it also includes concessions especially for farmers. If we look after farmers and low income groups, we are looking after Northern Ireland and I imagine that hon. Members from Northern Ireland constituences will back the Chancellor's pattern of tax cuts all the way. If they were seduced into supporting reductions in the higher tax bands, they would not find many of their constituents applauding them—but I am sure that hon. Members from Northern Ireland are too shrewd to do that.
The hon. Member for Cornwall, North (Mr. Pardoe) said that the income tax system was not progressive. He seemed to think that saying that finished the discussion. He did not explain why, if he considers that the income tax system is not progressive, he is proposing changes that would make it substantially less progressive. I find that a little bewildering.
The hon. Member said that there was no way of avoiding tax concessions being more advantageous to the high income groups. He seemed to be trying to excuse some of his proposals. But there are ways in which the tax system could be designed to make it progressive. If we used the exemption system instead of the allowance system, we could do a great deal to relieve the anxieties of the ordinary worker who feels that he is paying too much tax, without at the same time, needing to make concessions to those on high incomes.
It is time that the Chancellor looked at this possibility. It would be a radical change in the tax system. However, since that has not been forthcoming and we are faced with a choice between the Chancellor's pattern of tax cuts and the

suggestions of the Opposition, I must say that at least the Chancellor's pattern is slanted as much as possible within our peculiar allowances system, in favour of those on average and below average incomes and it is a good pattern. The proposals of Opposition Members to go in the opposite direction and favour those on high incomes at the expense of those on low incomes are monstrous and should be rejected.
I look forward with interest to the opportunity of defending the Budget in the Finance Bill Committee against the destructive attacks of the Opposition. However unpopular the Finance Bill may be to Conservative and Liberal Members, it is exceedingly popular among the people at large.
For example, pensioners will not be keen on the view of the hon. Member for Cornwall, North that there is something more advantageous in indirect taxation than in direct taxation because pensioners have been particularly helped by this Bill and it would be extremely disadvantageous to them if the Budget proposals were put into reverse and we had a series of indirect tax impositions. I believe that many people will be able to see through the sound and fury coming from the Conservatives and Liberals in this connection.
It is also extremely reprehensible of the hon. Member for Cornwall, North to suggest increasing the employer's share of national insurance contributions. I might have thought it a good idea at one time, but I have come increasingly to think that it is quite wrong for employment to be penalised and charged at high rates when mechanisation is subsidised. The correct balance between mechanisation and labour intensity will not be reached so long as we give generous subsidies to mechanisation and impose very heavy penalties for taking on labour. Whilst we have some semblance of a market economy, that is one aspect which I should like to see find its own balance. His suggestion would have a detrimental effect on employment policy and is highly irresponsible.
Although I do not think that this Budget is a sufficient response to our economic problems, I reiterate that the Finance Bill proposes a pattern of tax cuts which is acceptable to the population at large, to Government supporters


and to the Labour movement. I look forward to defending them.

Mr. Deputy Speaker (Sir Myer Galpern): Mr. Harold Macmillan—Mr. Maurice Macmillan.

8.31 p.m.

Mr. Maurice Macmillan: My right hon. and learned Friend's proposals made it clear to me at least that he knew where he wanted to make the necessary savings. They require public expenditure savings of a little under £500 million—about three-quarters of 1 per cent. of total expenditure. Speaking as a former Chief Secretary—and there are not many of us in this House—I find that this saving is quite possible even in this current year, despite the doubts expressed by my right hon. and hon. Friends. It is possible to achieve this level of saving through the normal shortfall which so many programmes have throughout the year, provided that the Treasury and the Chief Secretary do not allow any switching of expenditure from a programme which is going more slowly than expected into some other programme—in other words, the shortfall is retained as a saving and not spent elsewhere.
For a very long time now—it seems to us even longer since the present Government came to office—we have had too little effort devoted to the production of marketable goods and services, mostly by the private sector but also in part by the public sector, and too much of the total economic effort of the country devoted to the sort of public spending which hinders rather than helps the creation and spread of new wealth.
We can see that in the increasing amount of administration which is required for every benefit which the public sector seeks to bring to our citizens, compared to the amounts spent on goods and services. There are more administrators for every patient treated in the National Health Service. As my right hon. and learned Friend said, there are more tax gatherers than there ever have been—£200 million worth a year more than there used to be.
There is too much public spending which does very little for the productive sector and especially for the private part of the corporate sector. It is in the private part of the corporate sector where the greatest innovation comes and has

come consistently ever since the last war, and where there is most scope for employing people who are now out of work.
We have suffered a fiscal system and a tax structure under the present Government which is a positive encouragement to the get-rich-quick brigade, which encourages those who succeed in business to confine their success to one generation rather than to try to build on into the future, and which encourages spiv success rather than the long haul effort which takes some time to earn its due reward.
There has been active discouragement of businesses, be they in manufacturing industry or in service industries, to take a longer view and to build for the future, and active discouragement of those earners who seek to become owners and wish to invest in productive industry.
Alas, this Budget continues down the same dreary road to egalitarian poverty. That is why we have progressively worse services in the National Health Service, fewer teachers in our schools and fewer services to the public generally. By its efforts, the country is not generating the wealth out of which the cost of these services has to be met.
In some of its measures, I think that this Finance Bill has slowed down a little this dull and dreary progress, but it certainly has not reversed the direction. For example, there is no real benefit or incentive to the highly skilled wage earner. I believe that the strategy of the Budget envisages wage rises over the year 1978–79 of some 7 per cent. That seems a somewhat optimistic view to take, considering that the average household, after the Budget, will be paying £960 a year in tax compared with £880 last year, and when in any case the great success, so-called, of the 10 per cent. wage increase has, as far as one can see, produced an increase of nearer 14 per cent. So there is little in it for the above-average earner on the shop floor. For all the talk of the need to help those who are poorer and whose need is greatest, it is on the effort put in by the above-average earner that everything, in the end, depends.
There is very little incentive for middle and top management in this Budget. After it, the differential rate between, for example, the chief executive of a company and an average earner in the same company is the lowest in Europe. In


Germany the rate is 11·3. In Italy it is higher, at 13·2; perhaps it is so high because the Italian Government must compromise with their Communist Party. In the Communist countries, it is a very great deal higher than it is in any democracy. In the United States it is 11·3. In the United Kingdom, it is 5·7.
Even now, the higher rates of tax start at slightly over £7,000 a year. Under the previous Tory Government those higher rates, at the equivalent of today's prices, started at £10,500. That is the extent to which middle and higher management have not been helped by the Budget.
I agree that the Bill gives a certain amount of aid to the small investor, and we are grateful for small mercies. The investment income surcharge has been reduced and there have been some capital gains tax concessions. These have, incidentally, brought a great deal of benefit to those with very high incomes in a liquid portfolio investment and to the small-time stock market speculator. If one can manage to make a capital gain of £5,000 a year on a regular basis, that is £5,000 a year taxed at an average of 12 per cent., which is a good deal better than most of us can hope for. But that again is a benefit to the dealer, not to the creator of new real wealth.
As my right hon. Friend the Member for Stafford and Stone (Mr. Fraser) pointed out, this is the key—that not enough is being done, or has been done for some years, to try to stimulate those at every level in manufacturing and service industries and to make it in their interests not merely to make a lot of money to spend but to create and go on creating new, real wealth in productive forms which can begin to supply the needs of the country as a whole.
A little has been done for small businesses, but not very much for slightly larger and more medium-sized private companies. Perhaps I should declare my interest, which I think is well enough known, as taking part in one such enterprise.
When they talk about capital transfer tax and so on the Chancellor of the Exchequer and the Chancellor of the Duchy of Lancaster talk about encouraging the growth of small businesses. They talk about the need for fathers to be able to pass them on to their sons and so on. But it is capital transfer tax that effectively prevents that and actively

encourages those who would like to continue in their businesses to sell out, to cash in while the going is good. The words from the Treasury Bench now come in the dulcet tones of the Chancellor of the Duchy of Lancaster, but underneath them we hear the hard Yorkshire rasp of the Chancellor of the Exchequer talking about squeezing until the pips squeak.
They cannot have it both ways. Either they believe that unquoted companies, unincorporated businesses and the private section of the corporate sector matter or they do not. These provide about half the private sector employment and produce about 40 per cent. of the gross domestic product. The Treasury Bench must decide whether it believes in this particular element of private enterprise in the mixed economy, whether it truly thinks that it can provide jobs. If it is to be able to provide jobs for some of the unemployed, this is the sector that must be encouraged to expand. It cannot take people on if it is not there. Employers who have been driven out of business, businesses which have disappeared into a great combine or into bankruptcy, cannot be there on the same terms to take on all those made unemployed by higher productivity elsewhere.
Most of the types of business that I am talking about have already reached a higher level of profitability and productivity. They already re-invest a higher proportion of their profits. So their expansion means more jobs. If the Chancellor of the Exchequer is serious about his wish that this type of enterprise should continue to make the contrbiution that it has made in the past, he ought to think seriously about bringing in roll-over provisions for capital transfer tax, so that the ownership of a private company can be transferred without tax being paid until the assets are realised.
Obviously, whatever Budget any Chancellor of the Exchequer put forward, and whatever improvements may be made to the Finance Bill, none of it will do much good until we can get a new look taken at productivity by management, unions, shop floor, finance, and everyone concerned with the production of goods and services for marketing here and abroad.
I believe that we should start thinking of productivity as a factor not of labour,


of harder work by people, but of investment. Our object should be to see how the machines can be kept going and how highly we can pay those people who keep them going. Perhaps there could be a three-day week, or early retirement, or perhaps a different pattern of holidays. But, provided the relationship between the output of the machines and the payment of the people who look after them is correct, we can let wages go as high as the capacity of the firm concerned to sell its goods in a free market will allow. What we cannot do as a country is consistently to produce less from the same equipment than all our competitors overseas. This is the position that we are in.
I remember well the taunts, at the end of the last Conservative Government, which came from the Labour Party that we had reduced the country to a three-day week output. After all these years of Labour Government it is still there, and now the Labour Members sit on the Government side taking pride in what is, in effect, a non-achievement.
But if we can get the expansion, the higher productivity and the output at prices at which our goods can be sold, we shall have some incentive to invest and to expand the economy for the purposes which many of us would share with some Members in other parts of the House. But this means having a reduction in the higher tax rates. I do not think that the Chancellor of the Exchequer would lose very much in revenue after a while. It is quite possible that the yield from a lower rate of tax at the top end would actually increase as a result of reducing the rate of taxation. In fiscal terms, 50 per cent. of 100 is more than 90 per cent. of 50, and in economic terms a great deal more can be done with 100 than with 50.
Even if this takes a little while, we have the revenue coming to the Exchequer from the North Sea oil, and we have some sort of relief to the balance of payments constraint which has usually in the past prevented our efforts in this direction from being effective. But these are only temporary alleviations, and our resources must be used to build for the future and not frittered away in the present.
Obviously, everything cannot be done at once. In listening to the Chief Secretary

opening the debate, I found that all he said was that the pit in which the economy has now sunk is too deep to get out of in one Budget. He did not add that it was the Chancellor of the Exchequer who digged that pit nor that in his present Budget he has made but a feeble effort to get out of it.
My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) this afternoon showed how to start that escape from the pit which the Chancellor has dug. I hope that the whole House will support him in the measures that he put forward.

8.50 p.m.

Mr. J. W. Rooker: It is on a day like this that I feel genuinely sorry for Conservative Back Benchers—I mean ordinary Conservative Back Benchers. It is just as well that we do not have a Ten o'clock Rule on the Second Reading of the Finance Bill, otherwise very few genuine Conservative Back Benchers would participate in the debate. We had one Privy Councillor after another pontificating at great and inordinate length.
The right hon. Member for Farnham (Mr. Macmillan) is a typical example. The fact that he uttered inaccuracies made it even more annoying for Labour Members. The higher rates of tax do not start at a salary of £7,000 a year. That is the sort of twaddle which gets reported outside this House. They start at a minimum of £8,535 for a married man without any other allowances, and there is a slight difference between £7,000 and £8,535. The right hon. Gentleman, as a former Chief Secretary, ought to have known that.
The right hon. Gentleman makes the great claim that public expenditure is all damaging and that we must encourage the private sector. I need quote only two examples to show how fallacious his argument is. The privately owned construction industry in this country has suffered more as an industry than any other because of the public expenditure cuts. There was a massive lobby of this House by hundreds of workers from the privately owned Plessey telecommunications firm when the Post Office cut back on its ordering. That was a direct result of public expenditure cuts affecting the private sector.
It is not "private" in that sense. Both sectors depend very much upon each other. It is as false for I or my hon. Friends to make the opposite claim as it is for the right hon. Gentleman to make the claim which he did tonight.

Mr. Maurice Macmillan: If the hon. Gentleman reads Hansard, he will see that at the beginning of my speech I said that too much effort was devoted to the non-marketable effort both in the private and public sectors. I made it plain that the public expenditure cuts I was referring to did not help in the creation of wealth or in the provision of jobs.

Mr. Rooker: I do not want to get diverted, but one could argue that the telecommunications sector of the public sector is a marketable part of that sector. That is the way I have always understood it, unlike other areas of the public sector.

Mrs. Wise: Does my hon. Friend agree that the terms "marketable" and "non-marketable" are in themselves very odd? For instance, how does one regard hospitals? What about the relationship with pharmaceuticals? What about all the commodities that hospitals have to buy, from drugs through to bed sheets? What about schools, school books and so on? The distinction being made by the right hon. Gentleman is quite false.

Mr. Rooker: My hon. Friend is perfectly correct and has made the point better than I would have made it.
I should like to refer to the remarks of the right hon. Member for Chipping Barnet (Mr. Maudling), the former Chancellor of the Exchequer. I think I heard the right hon. Gentleman correctly—no doubt I shall be corrected if I am wrong—but I think the right hon. Gentleman talked about the Chancellor-in-waiting. The fact that he said he will be waiting quite a long time—not that he has been waiting a long time—is one great condemnation from a former Tory Chancellor to a so-called prospective Tory Chancellor.

Mr. McCrindle: I hate to disillusion the hon. Member but I have listened to nearly all the speeches, and I heard my right hon. Friend the Member for Chipping Barnet (Mr. Maudling) refer to the hon. Member for Cornwall, North (Mr. Pardoe) as the Chancellor-in-waiting.

Mr. Rooker: If that is so, I withdraw any imputation that I made. I would hate to cause dissension within the Tory Party ranks.. I thought that the right hon. Member was referring to his right hon. and learned Friend the Member for Surrey, East (Sir G. Howe).
I wish to refer to the speech made by the right hon. Member for Down, South (Mr. Powell). In the last 10 minutes of his speech he posed a whole series of questions—far more than can be answered tonight. They were so relevant and central to the Budget and the Finance Bill that I wonder why they were not posed by the official Opposition. Until these questions are answered it would be absolute folly and totally irresponsible for any major political party in this country to combine with another party in order to muck around with the Government's Budget strategy. I shall listen with interest for the answers to the questions.
There is another reason why there is less cause this year to muck around with the Government's Budget figures. I emphasise that I have no intention of trying to change any figures in the Finance Bill [HON. MEMBERS: "Oh".] There is nothing Machiavellian in that. In fact, I hope to defend the Finance Bill in Committee. I intend to play an active part in Committee stage, either down here on the Floor of the House or upstairs. I would prefer to do it upstairs because it does not disrupt the proceedings of the House so much. But I wish to make it clear that I support the Government and will help them to make sure that no detrimental changes are made.
There is a difference between this year's Finance Bill and that of last year. This year the Chancellor has not put into the Budget Statement any conditional area that he may amend later. Last year, on Second Reading, he said that the standard rate of income tax would be kept at 35 per cent., but subject to certain arrangements decided with the TUC it could come down to 33 per cent.—a difference of about £1 billion. Knowing that there was that amount to play around with, some hon. Members sought to change the direction of the tax cuts.
We have not been offered any further conditional tax cuts by the Chancellor this year. Perhaps the Chancellor has them in mind, but this year he has had the wisdom not to announce them, and


this has cut the ground from under the feet of those hon. Members who would seek to push the Chancellor further down this road. The road that my right hon. Friend has gone down is the one that I would have advised him to take. It is the road that I pressed him to take 12 months ago, both on the Floor of the House and in Standing Committee.
To that extent, I am pleased with the tone of the tax arrangements in the Bill. However, there will be problems. For example, there are the retrospective clauses.
I was distressed by an article that appeared in The Times of 24th April headed
Has the Opposition to courage to fight retrospective tax laws?
It was written by Mr. Oliver Stanley. There was one paragraph that made my blood boil. It dealt with the concept of retrospective legislation, and read:
It is said that in some countries revenue officers come through your door at three in the morning with sub machine guns in their hands. This is not so very different from that"—
"this" being the Bill. I cannot imagine a more extreme description of that which the Government are intending to do in the Bill than that paragraph. I hope that we shall not have all the constitutional mumbo jumbo that we get from certain quarters on both sides of the House about the concept of retrospective legislation.
All that the Government are seeking to do is to make illegal schemes that are strictly artificial. The right hon. and learned Member for Surrey, East was careful not to say that the Tories would oppose the clauses having a retrospective effect. He did not say that. He merely said that they would be considered with care and debated and that an effort would be made to amend them.
Of course, the hon. and learned Member for Dover and Deal (Mr. Rees) knows a thing or two about these areas of tax law. The hon. and learned Gentleman and I took part in a television programme some time before Christmas during which he did not seek to defend the scurrilous activities of those who are deliberately setting up artificial tax avoidance schemes. I advise my right hon. Friend to contact London Weekend and to obtain a transcript of the London Programme in which

the hon. and learned Gentleman took part. Such a transcript will be valuable ammunition in Committee. He will not be able to escape from the highly moral stand that he then took. He was already an Opposition Front Bench spokesman, so the stand that he took represented official Conservative policy.
In the short time that I have been a Members the House has passed retrospective legislation. One example concerned the Crown Agents. That legislation slipped through three and a half years ago. No one bothered about it. Things started to come out only when we discovered that £200 million had gone. We passed retrospective legislation involving £85 million when the right hon. Member for Newham, North-East (Mr. Prentice) was the Minister of State for Overseas Development. That was done late at night. There was no complaint from the constitutional specialists in this place on that occasion.
I do not take exception to retrospective legislation on that ground or any other ground. In this instance the beauty is that we have put in dates that are prior to the parliamentary announcement. We are dealing with those who are setting up tax avoidance schemes. They do so in the knowledge that we in this place are almost pristine white. They know that we play the game according to the rules. They take advantage of that to manipulate so that George Wimpey, for example, can get away without paying its rightful amount of corporation tax.

Mr. Pardoe: I agree with the hon. Gentleman in his condemnation of tax avoidance schemes. However, does he think that he should obey the law as it is now, or as he thinks it may be changed in future? Does he think that it was a good thing that the West hanged the 11 Nuremburg criminals for breaking a law that did not exist at the time that it was broken?

Mr. Rooker: The short answer is "Yes". However, we are coming on to a different plane of argument. I should consider it wrong to pass retrospective tax laws in the sense that we enacted a clause that had the effect that for last year, or the year before, the highest rate of tax would be not 83 per cent. but 95 per cent. That would be totally abhorrent.

Mr. Jerry Wiggin: That is exactly the same.

Mr. Rooker: No, it is not exactly the same. There is a massive difference between that type of retrospective legislation and the type that is in the Bill, which is strictly defined to catch those who have set up artificial businesses with the intention not of creating wealth, jobs and providing an input for the economy, but of avoiding their legal tax duty. That is the only reason for such businesses being established. That is not the same as the example that I gave. I shall take a great deal of convincing that it is the same.
The other brief point to which I want to refer concerns Britain being overtaxed. We have had this argument again tonight. We are not over-taxed. I advise Opposition Members to look at the "Which?" report on comparative tax payments—social security and income tax—between Britain and what are called the Western industrialised countries That report comes out in June. We are nowhere near as highly taxed as is generally believed.
I do not accept the change that was put in the Meade Report—that we could cut income tax and jack up all the prices on goods—and which the hon. Member for Cornwall, North (Mr. Pardoe) put forward on the Jimmy Young show this morning and rightly got his comeuppance when the pensioners started ringing in and Jimmy Young said "They are not very keen about beer and tobacco prices going up. They will not gain from any of John Pardoe's tax cuts."
The people outside who will not benefit from further tax cuts—the elderly, the sick and the disabled and those working on low wages who are not paying tax—have got the message of what is implied by the cohorts of responsible or irresponsible politicians who will seek to put the Government in the position of having to recoup lost revenue. They will not gain at all. It is unfair and irresponsible for both the Liberal and Tory Parties not to make their positions abundantly clear.
The right hon. and learned Member for Surrey, East was on the same programme. There seems to be a line-up of politicians on the Jimmy Young show putting forward the picture of the poor over-taxed

business man paying his 83 per cent. Even the interviewer did not have the wit to ask "What has he to earn before he starts paying that amount of tax?" At present rates, it is nearly £500 a week before one pays a marginal rate of 83 per cent.
The CBI claimed in the Press that it was getting Members of Parliament together to gang up on the Government. It has not written to any Labour Members as far as I can tell. I do not know what letters have gone to Tory and Liberal Members, but the CBI has not written to me. I feel a bit put out about it, in the sense that once in a while one can gleam some useful information from the CBI. It is always quick to attack Labour Members for not knowing what is going on and not understanding what it is putting forward. But there have been national and regional Press headlines galore in the last few weeks to the effect "CBI wants an extra £900 million. It will work with MPs to get it." The CBI is not trying to work with Labour Members of Parliament. It would get its come-uppance if it came to me, but it certainly did not write to me.
The Tory plan that we have heard today is irresponsible, as I have no doubt my right hon. Friend, the Financial Secretary will point out. I was going to intervene when the right hon. and learned Member for Surrey, East talked about the effect of taxes on skilled workers. He kept tying skilled workers in with management. Later, when he started to give examples, he stopped using the term "skilled workers". I was careful to note that because I proposed to ask him about it.
The right hon. and learned Gentleman proposed a change of 40 per cent. at £8,000 instead of £6,000. If one adds the married man's allowance, it means that the 40 per cent. rate becomes payable at £9,500—approximately £190 a week. I was going to ask whether the right hon. and learned Gentleman could give me examples of skilled craftsmen who would benefit from such a change. There are not many people in the West Midlands pulling in £190 a week. A great deal of our manufacturing capacity is based in the West Midlands which relies heavily on skilled workers. This Tory proposal is absolutely meaningless for skilled craftsmen in manufacturing


industry, and they will soon get that message.
The proposal for 1p off the basic rate has to be fought off. First, it would be very expensive—£350 million. I am not prepared to accept the argument that we should take it from the Vote to the National Enterprise Board. My hon. Friends in the Department of Industry often say in this House that Tory Members of Parliament, just as much as Labour Members of Parliament, are queuing up at the door of the Department asking for help for firms in their constituencies. One way of getting such help is through the National Enterprise Board. It is a pity that we do not have all the correspondence published so that we may see what is being asked for. Therefore, it is not on. The argument about where the money will come from is totally unsatisfactory and specious.
I turn to a matter which grieves me this year as it did last year. During the debate on the Budget I commended the Chancellor of the Exchequer for the way in which he directed the tax cuts. However, the situation is still not ideal. It will not be altered by the plans of the Liberal or Tory Parties. The tax threshold for a married couple with two children aged 10 and 13 years, including child benefit, is £40·04p. The threshold for the family income supplement entitlement for the same family is £47·80p. Those figures include this year's changes. That means that a family could be earning over £45, be in the tax net and at the same time, eligible for family income supplement.
That means that we have not solved the problem. This matter has nothing to do with the argument about unemployment or supplementary benefit. One can receive family income supplement only if one is in work. Even after this Budget we have the ludicrous situation in which some families will be paying income tax and going to the State for family income supplement. That is the State's way of subsidising bad employers. I resent deeply that taxpayers' money should be used for this purpose. Instead, we should introduce a statutory minimum wage. If the Chancellor has left any goodies in the dark about which he has not told us, I hope that he will use them to close that gap. I hope that he will not use

them to take 1p off the basic rate, because that will help most of those in the top bracket.
The Finance Bill is a good one. It needs defending in Committee. The Chancellor will have a problem to defend it. It is as well that he has Government Back Benchers who want to support him and who have taken the trouble to come here today. It is better that he should have hon. Friends who will get stuck into the Tories to defend the Finance Bill.

9.13 p.m.

Mr. John Wakeham: Having listened to the speeches by the hon. Members for Birmingham, Perry Barr (Mr. Rooker) and Coventry, South-West (Mrs. Wise), I am inclined to ask where all the rebels are now.

Mrs. Wise: We do not need to rebel because the Chancellor listened. We won that particular battle.

Mr. Wakeham: We shall see about that. I suppose that it is not surprising in election year.
This also involves a serious matter. It is that the proposals that we shall make do not stand a chance of being passed unless we have full support from the minor parties. That was evident from the remarks of the hon. Members for Perry Barr and Coventry, South-West. What applies to the Conservative Party's proposals must apply even more to the Liberal Party's proposals.
I shall deal with the questions raised by the hon. Member for Perry Barr in the middle of his speech. My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) began by saying that it was an important duty of the House to consider the Finance Bill. We have heard many speeches dealing with the major matters of the levels of taxation and allowances and about how we deal with direct and indirect taxation. But there are also issues, as the hon. Member for Perry Barr said, which might be considered small in totality but which involve great principles, which are fundamental to the rule of law and which are sufficiently important to be considered in principle on Second Reading.
The Government have great responsibility in framing their proposals. Their first duty must be to consider the overall interest of taxpayers large and small and


the ability of those taxpayers to discharge what is due to the Revenue with the minimum of inconvenience, knowing that their fellow citizens are doing the same. I also believe that the law must be such that those taxpayers whose affairs are more complicated can face their responsibilities with a sure knowledge of the law. This is an important point, and some aspects of the Bill present worrying features.
I make no secret of the fact—I think that most hon. Members know this—that I am a practising chartered accountant, as the Chief Secretary used to be. Obviously I have an interest in this matter. I wish to deal with some of the points that have emerged from the Finance Bill relating to tax avoidance. This is a much more complicated issue than the hon. Member for Perry Barr suggested. If I may correct him on one point, there is nothing to do with legality or illegality in these matters. There is nothing illegal, as such, in tax avoidance. We are not talking about legality or illegality but about steps which are perfectly legal although we may have different views on whether they are desirable.
I am in favour of the Government taking steps to deal with tax avoidance. It is right and proper that they should do so. Nevertheless, I want to look at the Chancellor's proposals with a great deal of care. I accept the general proposition that the Government should take powers in any Finance Bill to block an artificial device. I do not think that any hon. Member would seriously quarrel with the proposition that they should back-date the effect of legislation to the time when the Treasury announcement was made. Nevertheless, the speeches of the Chancellor and the Chief Secretary have raised some important issues. If we are asked to approve retrospective legislation well before the date of any announcement, the first question we have to ask is, what is artificial?
This is clear in practice in the extreme cases. We can all recognise a purely artificial scheme which is strictly within the law. And that is all it has to be at the moment. It is also quite clear at the other extreme. We can recognise a transaction where there are purely commercial arrangements, with the tax consequences merely a by-product of the transaction. What will be difficult to

recognise is an artificial scheme dressed up to look like a commercial scheme. It will need to be well dressed up and the sums of money will have to be large. It may well be that it would involve buying businesses to provide a flavour of authenticity. The effect will be to make the avoidance business available, presumably, only to a few extremely large taxpayers. I fear that we shall still go on with this situation if we do not deal with matters more satisfactorily.
Clause 26 appears to break nearly new ground in referring to benefits rather than intentions. Presumably this is to avoid the necessity of demonstrating intention. We shall have to look at this carefully in Committee.
This leads me to the view that the Revenue has a big responsibility and that further changes in the law are necessary if the Government are to deal effectively with tax avoidance. The Revenue must be told that it must devise a much more adequate clearance procedure than currently exists. Then anyone with tax liabilities can know much more surely and quickly whether he will have a problem.
The Revenue must also be told that its delays in getting out warnings, even if only non-binding signals, will be borne in mind when setting the dates of legislation. It must also be told not to operate existing legislation unfairly or oppressively, and Parliament should not hesitate to backdate legislation in the taxpayers' favour if that hapens.
We have brought some of these problems on ourselves. High taxation is fundamental to this problem, but even if it were much lower, there would still be tax avoidance if it were possible.
Some aspects of our tax law still work unfairly. For example, some substantial costs incurred by businesses are sometimes not allowable. On occasions the Revenue takes advantage of the small print in legislation just as tax avoiders have done. Some of the shortfall provisions have worked to leave many people building businesses with a difficult choice—either to sell out or to establish some way of avoiding or deferring tax in the hope of building the business up a little more and selling out later. Someone involved in tax avoidance not only runs a substantial risk of having his fingers burned: he must also consider fees of


20 per cent. and a tax rate of 98 per cent.
But that does not deal with the great matter of principle which worries me—retrospection. Surely no one can approve of retrospective legislation in principle. The only justification is the loss of revenue, and we do not know what that is. The Chief Secretary has referred several times to £200 million a year. I understand that that is a Treasury estimate of the total possible loss from all avoidance schemes. What I want to know before the Committee stage is the loss of revenue on one scheme—the commodity scheme—from 6th April 1976 to 25th November 1977. According to the financial Press, it is much more like £15 million than £200 million. The right hon. Gentleman must know the figure because he has given us the total. If, as I suspect, it is about £15 million, that is a small price to pay. I am not prepared to breach a substantial principle for that sum.

9.25 p.m.

Mr. Graham Page: Mr. Deputy Speaker, you and I owe the hon. Member for Birmingham, Perry Barr (Mr. Rooker) an apology. Another Privy Councillor has got up, not I hope to pontificate, but it may be so. I do not pay the hon. Gentleman the compliment that he paid the Privy Councillors who have spoken in the debate. When he attends the Finance Bill Committee, we enjoy his presence. We are used to the entertainment from the double acts on the Committee. We used to be entertained by Gilert and Sullivan. Now we shall be entertained by Morecambe and Wise.
Almost every speaker has referred to the importance of unemployment in considering the Budget strategy and therefore in considering the Bill. We are told almost every Tuesday and Thursday in Prime Minister's answers to Questions that the reduction of unemployment is our overriding need or, to put it more positively, we must create new jobs. The Chancellor in his Budget Statement said:
Our main object in the coming years, like that of other countries, must be to reduce the intolerable level of unemployment.
He went on:
But we cannot expect to see the rate of unemployment moving down at an acceptable speed unless we can create new jobs.

He said later:
If industry is to become more competitive …
—he listed one or two prescriptions for that and finished by stressing the need for:
more investment in new capacity."—[Official Report, 11th April 1978; Vol. 947, c. 1187–1188.]
There is a connection between investment and reducing unemployment. That interdependence between reducing unemployment or creating new jobs and investment is not recognised in the Bill. For every job there must be a capital investment base. There are few circumstances in which there can be more jobs without more capital investment. Accepting that the Government are committed to a policy of reducing unemployment, of trying to create more employment, where is the policy for increasing investment to back that up? It does not appear in the Bill. No such policy appears in the Budget Statement or in the Bill, other than perhaps the injections of State capital into industry.
I appreciate that within the framework of our present tax system it is difficult to encourage investment. The system is geared to discouraging investment and even to penalising, by higher tax rates, all private investment. The distinction between the goodies, whose income is earned, and the baddies, whose income is so-called unearned lingers on.
My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) put forward proposals of the Opposition further to reduce the unfortunate effects of the surcharge on those who have capital to invest. However, one looks in vain in the Bill for any recognition of the damage done by the principle, that lingers on in our tax system, of the difference in treatment between earned and unearned income and for the link between employment and investment.
For the provision of an investment base for new jobs the Chancellor relies on two policies. The first is indirect. The Chancellor hopes that the money being released through reductions in taxation will go into investment. Secondly there is the State investment by means of several measures of job creation and job sustenance operated by the Department of Employment.
I do not deny that there is a policy of State investment—compulsory investment by the taxpayer—but there are substantial disincentives for private investment in private enterprise. These days, most private investment is made by institutions—pension funds, insurance companies and so on—and, in some respects, this is an unfortunate aspect of the modern development of financing. Many such institutions have trustee status and cannot use their funds as risk capital. They find it much safer to invest in central or local government securities.
I wish to draw attention to the other sector of private investment in private enterprise. Individuals with savings to invest find that if they invest in the Government by buying national savings certificates or some gilt-edged securities, they are rewarded by various tax concessions. Otherwise, they are penalised by being charged higher rates of tax on their income from investments.
Is it beyond the wit of planners and draftsmen who draw up our tax legislation to distinguish investments that are accumulated fairly recently out of earnings? I am not asking for concessions on long-inherited wealth, but surely we can find a way to give concessions on savings made comparatively recently from earned income so that these savings may be relieved from higher rates of tax. I should like to see some imaginative incentives in the Bill for the ordinary citizen to invest his savings in private enterprise, or at least in a channel that would lead to investment in private enterprise.
The imaginative incentive that I have in mind is a scheme that could be called "Buy Yourself an Extra Personal Allowance." There would be a trust company, independent of the Government, which would issue bonds for, say, £1,000 each in cash. That cash would be invested in private enterprise undertakings, the size and nature of which could, if necessary, be defined by statute.
The income of the trust company from investments would be paid into the national Exchequer. The bonds would carry no interest but would entitle the holder to treat an amount of his income—say, £500 for each £1,000 bond—as a personal allowance so that this part of his income would be free of tax.
If the right figures were chosen, the individual would pay less tax and the Government, by having the use of the money and putting in into private enterprise, would not lose revenue. I would extend the scheme to the purchase of what I call an extra personal allowance by a father for his son on the occasion of marriage or other family relationship What I call "Buy Yourself an Extra Personal Allowance"—it would no doubt come to be known as BYEPA—would be a very attractive form of saving.
The Chancellor of the Exchequer said that our main object must be to reduce the intolerable level of unemployment. The reduction of unemployment can be brought about only by an increase in investment. An increase in investment by the individual can be brought about only by his savings. Therefore, we must make savings attractive. This Bill in no way does this, but it is essential for any budgetary strategy.

9.36 p.m.

Mr. R. A. McCrindle: Like my hon. Friend the Member for Maldon (Mr. Wakeham), I propose to concentrate my remarks entirely on that part of the Bill which refers to tax avoidance and the proposed retrospection of the Government's measures.
Like the Chief Secretary, I should say that before 1970 I, too, was involved in the tax avoidance industry. I am certain that neither the right hon. Gentleman nor I recommended a scheme which we did not think entirely within the law. I do not know much about the scheme referred to in Clause 26. From what I have been able to ascertain, it is not particularly commendable. It may even be reprehensible. Therefore, I do not wish to give the scheme my personal support. However, no matter how reprehensible the scheme may be, we cannot escape the fact that when it was entered into by people it was perfectly legal.
There is a legal dictum which overlies a great deal of what we are discussing. It is that it is not only the right but the duty of every citizen so to arrange his affairs that he pays the minimum taxation legally necessary. The proposed retrospection is denying to one section of the community the right so to do, and I believe that that is a backward step.
As a general principle, all members of the public are entitled to assume that they can act on the basis of the law as it is at the time when they enter into any arrangement. It is intolerable to have a society where this is otherwise, and retroactive taxation is one of the worst manifestations of it. If the Chancellor of the Exchequer is retrospectively to clamp down on tax avoidance, he can only encourage tax evasion. That may be disagreeable. It may be reprehensible. It may be immoral. But we have to face the facts as they are rather than as we would like them to be.
Although tax avoidance has always been legal, tax evasion has always been illegal. If people who today would engage in tax avoidance are pushed into tax evasion, the responsibility will lie largely at the door of Her Majesty's Government through this proposal. Retrospective changes in the law of themselves presupposes an inability to comply with the law and therefore bring the law into disrepute.
This may seem a relatively small matter to some Government supporters, if only one or two of them were here to hear what I say. However, it is a matter of basic principle that there should be some retrospective action proposed on a matter of taxation. The excuse given for these changes applying retrospectively is that they go back to the date of the announcement that changes were to be made. My hon. Friend the Member for Maldon appeared to take that as something which moderately justified the Government's proposals. I do not share that view. I believe that to take this action is nothing less than an affront to Parliament. It is time that the message went out from the House of Commons that laws are not made at Press conferences—which seems to be the implication of saying that one should date back this action to the date when the announcement was made that some action was contemplated.
Government by threat and innuendo is simply not acceptable, and I submit that that is what this proposal amounts to. If this sort of excuse becomes commonplace, I believe that effective law will be made without parliamentary approval. Its effect is to put the Government above the law, and that is a proposition with revolu-

tionary implications. While such a proposition may appeal to the Government's supporters, it certainly does not appeal to me.
In the Budget debate, the Chief Secretary spoke of tax avoiders as playing with fire, assuming that they, not the Government, have taken the initiative. We should point out that, on the contrary, it is the Government who installed a very high rate of tax in the first place, to which people are reacting by setting up these schemes. Therefore, I hope that, even at this late stage, the Government will seriously think again.
I particularly hope that my hon. and learned Friend the Member for Dover and Deal (Mr. Rees), who will be winding up the debate on behalf of the Opposition, will tell us in a little more detail than, understandably, my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) was able to do just where the Opposition are likely to stand on this matter.
I have suggested that it is a matter of principle. I would not therefore think that it is a matter which can be the subject of amendment in Committee. It is a matter which is sufficiently of principle that in my judgment—and in case we get caught in some future Finance Act once again—this is the time to stand against this, as a pure matter of principle. I hope that my hon. and learned Friend will be able to tell us that that is the approach that the Conservative Party brings to the matter this evening.

9.42 p.m.

Mr. Jerry Wiggin (Weston-superMare): I am very glad to follow my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) in what he has said, because I entirely agree with the way in which he has exposed the principle of retrospection. I do not see how we can maintain the rule of law and allow our citizens to operate under the law, which has always been the principle of this country, if, having done so, this House and Parliament can then go back and change that law simply because our citizens have read the small print.
I do not support tax evasion, any more than does the next man. I fail to see why it is impossible for the Government, on discovering the invention of some scheme—and I have some little knowledge of


how these things are done; not, unhappily, on my own behalf, but because I have a relation who is deeply involved in this matter—to decide that this will no longer be acceptable and to make a statement saying that from a certain day and at a certain time, no new scheme can be produced. However, no doubt this is a matter that will be debated in great depth in Committee and I would not wish to take up the time of the House at this hour of night to go any further into it.
I, too, would have enjoyed debating with the right hon. Member for Down, South (Mr. Powell) his conversion to income tax. I recall many years ago listening to an excellent speech that he made in the constituency in which I used to live explaining in simple terms the iniquities of income tax, and the way in which it stopped people wishing to work harder, imposed upon the individual the will of the Government, and so on. But a conversion has taken place. Perhaps in Committee we shall have the opportunity to debate that, too.
I have one relatively small point, on the face of it, to make tonight. It may be that some hon. Members might consider that it is basically a Committee point. I make it because in the Bill there is being introduced a brand new tax, a tax that is new in principle and requires a special dispensation from Brussels for its introduction. It will affect a small but important section of our community. It is called the tobacco products duty, which is basically putting a punitive duty on certain cigarettes with a high tar content.
I have no interest in the tobacco industry. I am not a smoker. But I have a constituency near the city of Bristol, in which the tobacco industry is a major employer and major investor, and a number of my constituents are involved in the industry. I try to keep an eye on the rather special provisions of tobacco taxation.
The proposal will put roughly 7p on a packet of cigarettes with a tar yield above 20 milligrammes. Surely it is a new policy that the Treasury should try to direct our social habits by penal taxation. I do not accept that the existing duties on alcohol and tobacco are in any way parallel. I believe that those duties are for the raising of revenue, that they should

be at the highest optimum level producing the maximum return to the Treasury.
Who are the mandarins of the Treasury to decide whether one cigarette should be smoked rather than another? They will be telling us next that we should drink one sort of drink rather than another. It may be that more old socks go into one Italian aperitif than another and that it may rot our guts faster, and they will decide that it will carry an extra duty. Gym shoes are bad for the feet. Are we to have an extra duty on gym shoes? Sweets are bad for the teeth. This principle could be extended throughout our lives, and it is wholly indefensible.
The Chancellor of the Exchequer has admitted that the revenue will be a mere £25 million and that he has introduced the duty not for the purpose of raising revenue but rather to change people's smoking habits. I understand that the majority of those likely to be affected are in the poorer and older sections of our community. They persist in smoking those cigarettes despite the propaganda put out over many years, which shows that they do not wish to have these habits altered. I do not believe that the Treasury is the right instrument for trying to change them.
Furthermore, this action is both unjustified and unnecessary, because on 8th March 1977 the industry entered into a three-year agreement with the Secretary of State for Social Services. The agreement, under six different heads, dealt with a progressive change in the advertising and promotion of cigarettes according to their tar content. It dealt with the non-introduction of high tar cigarettes and a change in emphasis over a period from high tar to low tar. The objectives of the agreement were obvious. It enabled the companies concerned to plan ahead and maintain employment, and not at one stroke deprive a section of the community of those things which they enjoyed.
Yet it was not long before the Government traded a decrease of 5 per cent. in high specific taxation for the European Economic Community agreement to a derogation for a United Kingdom health tax, in response to demands by the French and Italian tobacco industries, which are national monopolies. That little bit of jiggery-pokery has not been given much publicity.
Finally, to add insult to injury, the Government have selected a figure right in the middle of the existing bands used for health purposes and well understood in advertising on packets by the vast majority of the public. It is a figure that bears no relation to all the testing that has been carried out. I have no doubt that in Committee we shall be able to point out the precise difficulties that will be caused by the proposals in the Bill.
It is right to say that some companies will be more affected than others. Nevertheless, the tobacco industry is united in opposing this principle. I have a letter from the chairman of the Tobacco Advisory Committee, Sir James Wilson, which sets out the case quite admirably. It is the sort of letter that one would be tempted to read to the House in full because it puts the argument so well, but I will confine myself to one sentence:

The industry feels that the Government have not only imposed a tax which is unnecessary, unjustified and a breach of an agreement, but also done so in the most damaging possible way from the industy's point of view.
We shall argue the finer points of this elsewhere, but on the Floor of the House let us be reminded that a new tax is being introduced on a brand new principle which can and no doubt will be extended—as with all new taxes—into all sorts of other areas of our life at the whim and wish of Government, and not because we as individuals can have the choice of what we do to ourselves.
The principle involved here is one that I hold dear, as do many hon. Members on each side of the House. This principle must not be allowed to go by default. The tax is wrong in principle and wrong in execution, and I for one hope that it will be rejected in Committee.

9.51 p.m.

Mr. Peter Rees: In spite of what was said by the hon. Member for Coventry, South-West (Mrs. Wise)—I am sorry she is not here for me to say it to her face—I believe that no Government have been more fortunate in their main Opposition party than the present Government, at least in one respect the matter of fiscal legislation.
Over the past four years, this House has, after all, had to endure a torrent of fiscal legislation, and my right hon. and hon. Friends on the Opposition Benches have been assiduous, indefatigable, constructive and responsible in the way in which they have handled it. The debate tonight has, I believe, been no exception. There have been some very notable contributions from the Opposition side particularly, to which I shall refer in the course of my intervention.
But I should like at this point to refer to the speech of the hon. Member for Glasgow, Garscadden (Mr. Dewar). I do not know whether technically, within the conventions of this House, it counts as a maiden speech—

Mr. Powell: No.

Mr. Rees: —but, since I did not have the privilege of serving with the hon. Gentleman before 1970, I hope that I may be permitted to welcome it. The right hon. Member for Down, South (Mr. Powell), who is always a stickler for the finer points of etiquette, will, I hope, allow me to make a personal reference to the speech. I warmed to the hon. Gentleman's vigorous and fresh approach. I liked the way in which he described the role for Scotland in the United Kingdom. I perhaps cooled slightly when he referred to ingratitude in relation to the Budget. The Budget and the Finance Bill may have looked slightly different in the streets of Garscadden during the by-election from what they do here in this House, and we shall criticise them, perhaps, from a slightly different standpoint.
There will, of course, be much to be done with the Bill in Committee, with or without the assistance of the hon. Member for Birmingham, Perry Barr (Mr. Rooker). Whether the Patronage Secretary will encourage the hon. Gentleman to join us upstairs; remains to be seen, but

I can foresee that if he joins us, we shall have some notable contributions from him, even if he does not always join us with his vote.
The fundamental improvements to our fiscal system will not however be achieved through this Bill. They must be left to a Conservative Administration, to my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe). Indeed, I seemed to detect a rather wistful invitation from the hon. Member for Cornwall, North (Mr. Pardoe) to be asked to join us in this great task. I have no doubt that, if and when the time comes, we shall look at his invitation, if it is renewed, with sympathy and understanding and see how far we can make common cause in reducing our present fiscal system to some kind of coherence and order. Like the hon. Gentleman, I recognise that there is much to be done. If it can be done on a bipartisan basis, so much the better.
The Government Front Bench seems to be a little surprised by that, but since the hon. Gentleman affects to think that the Government's measures have in large part over the past 12 months depended on a bipartisan approach by the Labour and Liberal Parties, I do not see why it should be regarded as unduly outwith the bounds of parliamentary convention that we should at least consider the possibility of the hon. Gentleman renewing this tempting invitation in rather different circumstances. As I say, what conditions he will attempt to attach to it and what conditions we shall consider appropriate remain to be seen. Let us for the moment, at any rate, consider how best we can join forces in Committee. Again, I conceive that there may be one or two points on which we shall be able to make a common cause.
I have read the hon. Gentleman's dreamland Budget. I am not certain how far it must be regarded as Liberal Party thinking. It may be that after another bruising encounter with the Chancellor of the Exchequer, he has jettisoned some of the more challenging proposals. At any rate, we can explore these proposals on a later occasion.
We understand why the Chancellor himself, with or without Liberal support, cannot really contemplate any fundamental overhaul of our tax structure.


But the constraints are largely of his own making. First, there is the increased public expenditure which is forecast in the Financial Statement. That confirms the worst suspicions that we nurtured when we debated the public expenditure White Paper in March. At a later stage I shall come to the cogent analysis of the right hon. Member for Down, South, which led me to suppose that he might find it difficult to vote for any major tax cuts in this Finance Bill.
The other constraint which the Chancellor has erected is his stubborn and obstinate aversion to even considering the possibility of altering the rate of VAT. Even the possibility of using the regulator seems to have escaped his attention. We have it on very good authority from the Chief Secretary—it was repeated again by the Financial Secretary this afternoon—that VAT is nothing like as regressive as we used to think. At least the process of education has gone a certain distance on the Labour Benches. Perhaps we shall have a chance of taking it a little further if needs be.
I do not suppose that such a robust figure as the Chancellor really needs any sympathy from me. But there have been times when I have almost been moved to sympathy by the difficulties he has had in reconciling, in political terms, his hon. Friend's below the Gangway, Transport House, the TUC and even the hon. Member for Cornwall, North. Even with the skilled mediation of the Chancellor of the Duchy of Lancaster, I concede that to have been a challenging political task.
We Conservatives can well understand why it has left the Chancellor little time to study the needs and real aspirations of the British people. It also explains why no coherent discernible theme has emerged in this Finance Bill. As my right hon. Friend the Member for Chipping Barnet (Mr. Maudling), with all his vast experience, observed, it has been a disappointing Budget. Indeed, that view was echoed by the hon. Member for Coventry, South-West. She, too, was a little disappointed, as we all were.
We recognise the political constraints on the Chancellor. We shall endeavour to relieve him of some of those constraints, even at the risk of encountering a charge of irresponsibility from the Chief

Secretary I shall come to that in a moment.
Before coming to the central theme of this debate I should like to deal with some of the random yet still important points. My hon. Friend the Member for Weston-super-Mare (Mr. Wiggin) referred to the duty on high tar cigarettes. I suspect that it is a little too late to complain of taxation as an instrument of policy, whether it be political, economic or social. I am afraid that there are too many earlier examples of that. I appreciate that perhaps in this case the medical evidence is a little more finely balanced than the Secretary of State for Health and Social Security may be prepared to concede. I think we may have to explore that in a little more detail in Committee upstairs.
The main charge against this tax is that in March 1977 a three-year package was negotiated between the industry and the Secretary of State and this tax is in breach of that concordat. It is up to the Secretary of State and the Treasury Front Bench to consider the implications. When I next hear then talk at undue length and with perhaps rather maudlin sentiments about the high unemployment level which we certainly deplore I shall wonder whether they have considered the impact of this tax on employment in the tobacco industry.

It being Ten o'clock, the debate stood adjourned.

Orders of the Day — BUSINESS OF THE HOUSE

Ordered,
That, at this day's sitting, the Trustee Savings Banks Bill and the consideration of Lords Amendments to the Shipbuilding (Redundancy Payments) Bill may be proceeded with, though opposed, until any hour.—[Mr. Walter Harrison.]

Orders of the Day — FINANCE BILL

Question again proposed, That the Bill be now read a Second time.

Mr. Peter Rees: I turn now to the subject of value added tax.

Dr. Bray: On the question of employment in the tobacco industry, is the hon. and learned Member aware that Wills (Glasgow) is a very large employer in


tobacco in an area of high unemployment? The company is part of the Imperial Tobacco group. Will he not agree that it is regrettable that in its diversification programme in the interests of shareholders Imperial Tobacco has completely neglected to create the new jobs in areas that could take former tobacco workers?

Mr. Rees: I am very flattered that the hon. Member should intervene on this basis—on the assumption that I pay the close attention to the internal affairs of one particular company in the tobacco industry that he does. It is an important industry and I am sure that the hon. Member will make an important contribution to the Standing Committee proceedings upstairs, if he is a member of the Committee. If he is, no doubt he will tell us how far Wills is likely to be affected by this provision. No doubt we can extend our debates to considering the diversification of Wills's activities. However, I am not absolutely certain that the point he makes is central to this fiscal theme.
I turn to the subject of VAT and my comments are a prelude to our debates upstairs. We welcome the raising of the threshold to £10,000. There was a Conservative amendment to this effect in May last year which, strangely enough, did not receive Liberal support. No doubt the hon. Member for Cornwall, North will explain to us later why his party is so keen this year to claim this as a great Liberal triumph, when it would not support our amendment last year. The only technical point I would put to the Treasury Bench is whether it is really necessary to keep the deregistration point as high as £8,500.
We welcome the provision on bad debts, as we have been moving amendments on this matter for many years. However, I still believe that the Treasury Bench has been a little stringent, mean and narrow in that the tests imposed for bad debts are considerably stricter than those relating to income tax and corporation tax. I hope that in Committee upstairs we can persuade the Government to relax these provisions a little.
Overseas earnings are a matter of some importance to the self-employed. At the moment, small businesses and the self-employed are basking in the warmth of the Government's affection and, nature-

ally, we welcome this relaxation. We moved an amendment last year—and again the hon. Member for Cornwall, North was conspicuously absent from our debates. The hon. Member is well known for his aversion to debating these matters after midnight, but I checked up on this debate and I found out that it took place at 10.30 p.m. I do not want to tempt the hon. Member now—no doubt he will make powerful interventions on other occasions.
The relief that the Treasury Bench has devised has been rather rough and ready. Once again the Government have not been prepared to put the self-employed on the same basis as the employed. Why, for instance, must a self-employed person stay abroad for 60 days while an employed person need only go abroad for 30 days? Again, since the Government are very ready to make their legislation retrospective when they have given a warning or taken a point, and since the Treasury Front Bench said last year that it would look sympathetically at this point, why not make the relief retrospective to 1977–78? At least then we should find a certain symmetry in the Government's approach to these problems.
On capital allowances, we welcome the concession to hotels. The hon. Member for Cornwall, North described this as a Cornish Budget. The only specifically Cornish point, if that is what it be, that I can detect is the provision of capital allowances for hotels. On that basis I should be disposed to claim this as a Dovorian Budget. In fact, any right hon. or hon. Member who has a coastal constituency is likely to be pleased with the provision. Therefore, I welcome it. Credit, if credit should be sought, should go to my hon. Friend the Member for Christchurch and Lymington (Mr. Adley), who has been raising the matter—

Mr. Joel Barnett: What about me?

Mr. Rees: The right hon. Gentleman is so quick to claim credit for the currants in this rather suety Finance Bill. On this occasion I must go back a little in time. I do not recall that the right hon. Gentleman was over-solicitous of the interests of hoteliers and boarding house keepers before he was prompted by my hon. Friend the Member for Christchurch and Lymington. However, there is joy in Heaven over one sinner that repenteth.


I have no doubt that the Chief Secretary will be able to join us in Committee in sackcloth and ashes and do penance. We shall receive him warmly. We shall recognise the profundity of his conversion.
There is a matter that I should draw to the right hon. Gentleman's attention before he becomes over-proud of his clause. He will recall that the fire regulations are applied to any hotel or boarding house that has six beds. Why does he not, in a perhaps unexpected burst of generosity, align the basis for capital allowances with those regulations? At least that would have the merit of affording some relief to the smaller business man. We all know that the smaller business man has now entered the Labour pantheon and that he is now to be the recipient of special attention from not only the Chief Secretary but the Chancellor of the Duchy of Lancaster.
The hon. Member for Cornwall, North chooses to claim averaging for farmers as another Liberal victory. I am not disposed to deny him that. I am inclined to think that when the farming community has worked out what it will mean, averaging over two years rather than three years, it may find it to be a rather unattractive gift horse. Had the clause applied over three years or four years, it might possibly have afforded a real measure of relief.
I am a little rusty on my history, but it may have been a coalition Government with Liberal support who abolished the original averaging provisions in the late 1920s. However, that is a matter of history and I have no doubt that the hon. Member for Cornwall, North will be able to correct me if I am wrong.
We should have preferred—it would have been a more practical solution to the problem—some sort of special reserve such as the Australian tax system envisages. I note that the Chief Secretary is smiling. It may be that he considered that system and rejected it. That is the sort of measure for which we are pressing and will be pressing. It would offer a real measure of relief to the farming community.
I move to capital gains tax.

Mr. Joel Barnett: A good idea.

Mr. Rees: The Chief Secretary says "A good idea". We are grateful to him.

He spoke, as often, just a little too soon. The most revealing statistic that came from the Government Front Bench was that the proper indexation of capital gains tax would reduce the yield by £350 million. It will be seen in the Financial Statement that the projected yield this year before the reliefs were given—I hope that the Chief Secretary will follow this, because it was his statistic—was only £390 million. In other words, all but £40 million of capital gains tax is charged on inflationary and not real gains. The House will readily appreciate that those figures give the true measure of the tax. Is it worth perpetuating a tax which when 80 per cent. or more of its yield depends on inflationary and not real gains?
We welcome the modest little concessions which have been made. It was inevitable, having seen the lukewarm nature of the discussion paper, that nothing substantial would come out of this year's Finance Bill. But I can tell the Treasury Front Bench that we shall go back to this subject again. In Standing Committee we shall be pressing the Government for a genuine measure of indexation. That is the way in which this tax can be put on a successful basis.
Whether at the end of the day, if the tax is indexed it will be worth collecting will remain for debate. A point which always escapes the Treasury Front Bench is the considerable compliance costs of this tax. I suspect that of all the taxes which are collected by Somerset House, the compliance costs to the taxpayer of capital gains tax are the highest. In order to collect £40 million of real gain, is it worth inflicting that kind of burden on the taxpayer, except to satisfy some deeply rooted instinct in the Labour Party to cause damage to the owners of property and capital?
The hon. Member for Penistone (Mr. Mendelson) laughs. He has a consistent position on this matter. We know his position and we respect it. Of course, he would not stop short at capital gains tax. Why should he? He would like wholesale confiscation, because he does not believe in private capital.

Mr. John Mendelson: Perhaps I may tell the hon. and learned Gentleman why I laughed. I laughed because I was privileged to see him on a television programme the other day when


the major tax fiddling companies were telling us how they were doing their job. The hon. and learned Gentleman did not seem too unsympathetic to the work of those companies.

Mr. Rees: I am flattered that the hon. Gentleman should follow my fortunes on television. It was not a particularly significant programme, although it was also referred to by the hon. Member for Perry Barr. I shall be coming to tax avoidance. If the hon. Gentleman wishes to intervene at that point, I hope that he will not hesitate, because it is an important subject. It should not become obsessive to the House.

Mr. Mendelson: It is the principle.

Mr. Rees: The hon. Gentleman is right to remind us that we must concern ourselves not overmuch with the minutiae of Clause 26 but with the principle. I have no doubt that at the end of the day, as so often happens, except in the area of devolution, the hon. Gentleman and I will find ourselves on opposite sides of a very wide divide. I have no doubt that the exercise of debate will be good for us both and for the House as a whole. Perhaps I may be allowed to come to that point, which I had very much in mind, at a later stage.
We welcome the relief for business assets. That point was made effectively by my right hon. Friend the Member for Farnham (Mr. Macmillan), who has a wide, deep and long experience of these matters. It was perhaps a Freudian slip that the Chair called him in the name of his distinguished father, because he incorporates in himself now not one, but several generations of fiscal experience.
The point to which the Treasury still has not addressed itself is the overlap of capital gains tax and capital transfer tax. It cannot be right that two taxes on capital should be charged on the same transaction. This is a point to which we shall have to return upstairs.
The question of loans to traders is important. We are glad to see the relief offered. We wonder why intra-group loans are excluded. That tempts me to come back to the area of tax avoidance.
Many people, because of the stringent way in which capital gains tax has been devised, have sought to turn their loans into debts on securities or equity capital

to take advantage of the loss relief. Is that the kind of illegitimate avoidance that the Chancellor feels should be countered by retrospective legislation; or, with the passage of time, has it become respectable?
As I said, we now have a measure which tells us that we can get relief for loans. Therefore, what was illegitimate three years ago is now presumably legitimate. That demonstrates that tax avoidance is not quite the clear-cut area which not the hon. Member for Penistone—I credit him with a great deal of sophistication—but his hon. Friend the Member for Perry Barr would have us believe.
I turn now to profit-sharing schemes. The hon. Member for Cornwall, North claims this as a massive Liberal victory. One does not like to grudge him these points.

Mr. Pardoe: Not massive.

Mr. Rees: All right, not massive. I recall and should like to remind the hon. Gentleman and the House that last year my hon. Friends the Members for Harwich (Mr. Ridsdale) and Norfolk, South (Mr. MacGregor), who are so assiduous in these matters, moved a clause to introduce reliefs in this area. Again, where was the hon. Member for Cornwall, North? I recall that on this occasion it was after midnight and so, of course, under the hon. Member's well-known rule, he was entitled to be absent. We missed the hon. Member's contribution to that debate and we shall welcome his contribution in Committee, providing that the debate comes up before midnight.
We welcome these provisions as a first modest step in the right direction, for all the reasons that the Chief Secretary outlined. When he puts his mind to the problem and remembers his ungenerate past in accountancy in Manchester, he can say some sensible things. However, all too often he is looking over his shoulder at his hon. Friends below the Gangway and then he says some unsensible and remarkably unattractive things. We might have had a more interesting speech from the Chief Secretary had the Government Benches been as bare as they are now.
We are entitled to ask whether it was necessary, in view of the sentiments now


coming from the Treasury Bench, to legislate against share option schemes in 1967. We have sometimes had good, robust, commercial common sense from the Prime Minister and perhaps he has learned a little in Cardiff since those darks days. But he was quick to stifle the growth of share options in 1967.
We do not believe that these schemes need positive encouragement. It is enough that the fiscal system leaves them to develop in their own form and own shape. This is because each business will have its own particular problems. They will have to develop schemes to meet their own needs and the aspirations and ambitions of their employees.
The Conservative approach was to stand back and let them develop unfettered by tax burdens. The Chief Secretary laughs, but the burdens were imposed in 1967 and again in 1974. I have taken the trouble to look up the speech of the Chancellor of the Exchequer in 1973 when he was bitterly opposed to the modest measure of relief introduced in the 1973 Finance Bill. He was opposed on the grounds that the share option scheme would benefit neither the public sector nor the lower paid.
For clarification we shall have to ask the Chief Secretary whether the measures that he is proposing can be extended to the public sector. Do we envisage the day when the National Coal Board settles down with the National Union of Mineworkers to work out how much of the equity of the coal industry should be made available to members of the NUM? That might be a desirable development. We might even carry the hon. Member for Penistone with us if we moved our own amendment to that effect. We must consider it.

Mr. John Mendelson: Since I have been in the Chamber the hon. and learned Member has promised himself so much fun in Standing Committee that I doubt whether we shall ever see him again once he gets there.

Mr. Rees: The hon. Member has pinpointed one of my many weaknesses which have been long observed by my own Whips and, no doubt, by the Patronage Secretary—that I enjoy the Standing Committee upstairs but on this occasion I assure the hon. Member that

his right hon. and hon. Friends will ensure that something will come back over which we can fight down here to our mutual profit.
I turn to capital transfer tax. Of course we welcome the relief for business property and the reduction in rates. However, when we examine the reduction in rates we find that they are trifling. A mere increase of £10,000 in each band carries us nowhere. I wonder what is the logical basis for this relief. If it is to take account of the impact of inflation, it must be more than £10,000. If it is a sop to small businesses or to the Opposition Benches, I can assure the Chief Secretary that we shall not be satisfied by that. I am sure that many people outside the House will not be satisfied.
I do not believe that these reliefs should be limited to small businesses. There is a whole range of analagous activities which deserve the beneficient glance of the Chief Secretary.
At the end of the day a mixed economy needs capital, unless, as is the case with Labour Members, there is a belief in State capitalism. If we believe in a mixed economy, there must be a considerable contribution of capital from the private sector. That means that something must be left in private hands, and not necessarily first generation capital, either. As my right hon. Friend the Member for Farnham has pointed out, there is considerable virtue, social and economic, in the slow accumulation of business wealth, and wealth from other sources, agriculture for instance, over many generations.
In a way, this process is the basis of the remarkable expansion of our country in the nineteenth century. Although one cannot perhaps pinpoint any one reason for our decline, perhaps one was the highly unattractive series of measures introduced in 1894. Sir William Harcourt has, I am afraid, a great deal to answer for. Perhaps the hon. Member for Cornwall, North will answer in the present day for him. In our debates we are never absolutely certain which chapter of the Liberal Party's past the hon. Gentleman is dealing with, whether it is Sir William Harcourt, Asquith, Lloyd George or some later luminaries. Anyway, the hon. Member will have the time to clear up the Liberal Party's position on this.
Encouraged by the hon. Member for Penistone and his hon. Friends and by my hon. Friends the Members for Maldon (Mr. Wakeham) and Brentwood and Ongar (Mr. McCrindle), who have made notable contributions to our debate, I turn to the question of avoidance, which is posed in a particularly stark form by Clause 26. This is a theme which has been running through many of our debates, regrettably, since 1974 and, let us be realistic, earlier. We must draw a sharp distinction between avoidance and evasion, although both are a phenomenon of a high tax rate system. Both are, to a degree, a consequence of political taxes.
Labour Members must face the fact that if they are to use the tax system as a sharp political weapon, people will respond in kind. If they can get advice which enables them to order their affairs so as to keep the rate of tax on their income or their capital down to what they regard as reasonable—and these matters must be subjective—it is only to be expected that they will do so. The Chief Secretary and his right hon. and hon. Friends would be unrealistic not to recognise that we can only impose taxes on people to a limited degree. We have to carry the general body of taxpayers with us. They will tell us ultimately what is a fair rate and what is not. Some of them will do it by moonlighting, by flitting, by evasion. Others, perhaps the more sophisticated, and—I give this to Labour Members—those who have access to better advice, will do it perhaps by avoidance. Neither phenomenon is attractive. We all recognise that.
The battle is not one-sided. To listen to Labour Members one would imagine that the Revenue was battling short handed and short of advice against a crowd of highly sophisticated, more agile tax avoiders. There has been a notable series of cases in which the judges—and I know that Labour Members, not all of them, have a high regard for the Bench, as I do—have had occasion to observe that there are a great number of provisions on the statute book that were probably directed to anti-avoidance but that have now been extended beyond their original purpose.
I cite from a recent case. I shall not mention the judge's name, although it can be readily ascertained. It is a case called Vesty. The judge said:

I am quite unable to understand on what principle of law the Crown, as Lord Upjohn said in another case, realising the monstrous result of giving effect to the true construction of this section, or what it assumed to be the true construction of this section, feels itself entitled to mitigate that monstrosity by such concessions as it chooses to make. One should be taxed by law and not by concession. This has now proceeded such a long time without the Revenue authorities which they have at least once a year to put the matter right that I am afraid they must have failed to realise the deep brooding resentment felt by every taxpayer who is not charged simply on his own income.
Those are not the words of a Conservative Member of this House; they are the words of a judge who was called on recently to consider a provision that has been on the statute book for many years. I take that case because that provision was introduced by a Conservative Government in 1937–38. It demonstrates that the battle is not one-sided.
If the Treasury Bench is sincere in its intention to hold the balance between the taxpayer and the Revenue, it would be well advised to look through the statute book to see whether many provisions have not outlived their usefulness. This time, however, it has chosen to adopt a novel constitutional precedent.
Since 1959, regrettably, we have got used to the principle which Labour Governments have adopted of announcing first and legislating later. It was the case of two gentlemen in the motor car industry which prompted Sir Stafford Cripps to legislate on that basis. Now, we have reluctantly to accept—although we need not welcome it—the fact that this is common form for a Labour Government. This is the first time that I have been able to discover that they have chosen to legislate without prior warning at all—subject to one point. This is why I think that their position is even more discreditable than has yet been revealed.
A question on this matter was put to the Chief Secretary by one of his hon. Friends—whether prompted or not I neither know nor care. It related to the particular scheme at which Clause 26 is directed. In his Answer on 25th November, the right hon. Gentleman said that the Revenue did not accept that the scheme was soundly based in law and would be challenging it in the courts, but that the Chancellor would legislate for good measure in the Finance Bill.
Which way do the Government want to face? If the scheme is not soundly based in law, what need to legislate back to 1976? If it is soundly based in law, we can consider in Committee—no doubt taking a robust view—what measures are appropriate in that kind of case. The measure proposed in Clause 26 is utterly repugnant to every constitutional principle which we on this side hold dear. Certainly we shall give it a rough handling in Committee.
In Committee, also we shall press the Chief Secretary to tell us what his hon. Friend has discovered in Jersey. As I understand it, not content with having screwed down the tax system as hard as they can in this country, Government are now trying to extend the Inland Revenue's jurisdiction to the Channel Islands. We covered this ground in our capital transfer tax debates in 1975. If the hon. Member comes back with measures to bring Jersey into the net, we shall have some useful debates in Committee—and perhaps confirm the worst fears of the hon. Member for Penistone that we shall not come out of Committee until late in July.

Mr. Pardoe: We shall not get there at all at this rate.

Mr. Rees: There will be time enough to go into those points in greater detail. What have emerged as the centre of today's debate are the cuts in direct taxation, basic rate, investment income surcharge and the higher rates. There seems to have been a positive orgy of responsibility on every side today. Of course, the Chief Secretary has tried to pin on us the label of irresponsibility. In a corner, he always believes in attack. One admires the verve with which he goes for the Opposition. It is part of his charm and his technique. It is not always reproduced quite so effectively by his right hon. Friends, but they have caught his habit.
Does the right hon. Gentleman believe that tax cuts, which on any view cannot amount to more than £500 million, can be regarded, against the background of this Bill, as irresponsible? The right hon. Member for Down, South, as one would expect, made a penetrating and elegant speech—perhaps the most effective speech on this point and far more so than any speech from the Government Benches.
As I understood it, the right hon. Gentleman argued that it would be impossible, or nearly impossible—perhaps he allowed himself a loophole. There was, as always, a slightly Sybilline quality about his speech, and no doubt the Government will study it closely before he joins us in Standing Committee. It was not entirely clear what position the right hon. Gentleman and his colleagues will take up, but he seemed to be saying that it would be nearly impossible to envisage tax cuts of even £½ billion, first, because it would be wrong to shift the emphasis on to VAT because income tax is the most sensitive fiscal instrument in a Chancellor's hands.
I have no doubt that William Pitt and Addington would warm to these latter-day commendations, but I am no longer persuaded that income tax is such a sensitive instrument and it has certainly not been in very sensitive hands of late. That is what we are debating.
It is all very well the Chief Secretary fluttering his hands. They may have been sensitive when he was working in Manchester and they may become sensitive again when he returns there—and we shall endeavour to speed him on his way to a profitable practice once again; he has been lost too long to his profession—but his hands have become a little harsh and insensitive. It is to undo the work that the Chief Secretary and his colleagues have inflicted on the country over the past four years that we shall be moving our amendments.
The right hon. Member for Down, South said that it was not feasible to cut public expenditure after the start of the financial year. I find this a difficult proposition to swallow, because we were debating the levels of public expenditure just four or six weeks ago. If his proposition is accurate—and I defer to his experience and study of these matters, because he was Financial Secretary in a Conservative Government long before I was even fighting a seat—our debates on public expenditure White Papers are otiose.
I seem to recall that in his contribution to public expenditure debates the right hon. Gentleman is always making the point that it is idle to consider forecasts beyond a year ahead. If one marries those two propositions, we might as well give


up having debates about public expenditure.
I agree with what the right hon. Gentleman said about the public sector borrowing requirement. I know that I speak for all my right hon. and hon. Friends when I say that we would not wish to move any amendment that would increase the borrowing requirement, but, as my right hon. and learned Friend the Member for Surrey, East has pointed out in clear, cogent and convincing language, there would be no need for the Government to adopt that course if they are defeated on our amendments to reduce the basic and higher rates of income tax and to reduce the investment income surcharge.

Mr. Wrigglesworth: I hope that the hon. and learned. Gentleman can help the House, because I am a little puzzled about the cost of the further amendments that he has suggested the Opposition will be tabling on capital gains tax and a whole list of tax reductions. They will cost more than £500 million.

Mr. Rees: We are told that we shall not get massive support on those amendments, but we look at the logic of our position and we shall be making practical suggestions that will allow the Government to encompass the reductions very comfortably. The Chief Secretary can await confidently that we shall be doing nothing irresponsible in Committee. We shall suggest exactly how he can absorb those long-deferred amendments, many of which have received a passing benevolent glance from him in previous years.
Our pretext for proposing these amendments to cut the basic rate and investment income surcharge at the higher rates are very simple and clear. We take our theme from the Chancellor of the Exchequer himself, who said that this was to be an incentive Budget and not a Budget of sacrifice—[Interruption.] I am sorry that the hon. Member for Thurrock (Dr. McDonald) is not enthused about the possibility of cutting taxes. I know it has been a long and wearisome debate for her, and I hope, therefore, that she is spared the possibility of joining us in Committee upstairs. Next time, perhaps she can sleep through the speech of the Financial Secretary. I should like to feel that I was holding her attention,

whereas she must know already what her right hon. Friend will say.
I come back to the question of human motivation, and it was a theme that emerged from speeches from practically all quarters of the House. It came from the hon. Member for Caernarvon (Mr. Wigley), who has a passing knowledge of accountancy and who again will probably make a notable contribution to our debates upstairs. We had it, of course, from my right hon. Friend the Member for Chipping Barnet, and from my hon. Friend the Member for Croydon, South (Mr. Clark).
I think that the House is right to fasten on this, because, at the end of the day, the questions of growth are not mechanical ones. We do not get a given level of output, nor even a given level of employment, from a given input of Government money. We have to ensure that people have left in their pockets at the end of the day a reasonable net return for the risks that they take or for the work that they undertake. Clearly, this has not yet been fully grasped by the Treasury Bench, even with the sensitive instruction which it has no doubt received from the Chancellor of the Duchy of Lancaster.
We want to ensure not, as the Chancellor of the Duchy engagingly and perhaps slightly misleadingly described it, a country fit only for the £20 million or £10 million man to live in. That Freudian slip from the right hon. Gentleman in his contribution to the Budget debate seemed to recognise that the only person who can afford to live in this country is one who can live entirely on substantial amounts of capital, because, after the crushing burden of direct taxation, he probably cannot live on his income. This was a very engaging slip of the right hon. Gentleman, and I have no doubt that we shall be able to explore it on other occasions.
In many ways, this is a disappointing Budget and a disappointing Finance Bill [Interruption.] Every speech has to come to an end. All good things have to. It is important to try to give a speech some form. I know that the Chief Secretary thinks that a series of staccato barks at the Opposition Front Bench constitutes a speech. He is secure in the knowledge that he has a solid block of trade union votes. The Opposition try to persuade


by argument and reason. Perhaps this is a novel concept, but it is one to which I hope the Labour Party will become accustomed. I know that the hon. Member for Penistone wants that, because he always treats the House to a very carefully reasoned discourse. One may disregard or dislike his premises, but always his case is faultlessly and attractively argued, and I wish that there were more contributions like his from the Government Benches.
As I said, this is a disappointing Finance Bill, especially when we recall the nods, winks and hints of real reliefs at the end of last year. We welcome the reliefs such as they are, especially where they reproduce amendments moved by the Opposition since 1974. But I can detect no coherent strategy to relieve the country from the burden of direct taxation which we know, which the country knows and which, in its heart of hearts, the Treasury Bench knows, without any prompting from the hon. Member for Cornwall, North, to be excessive and quite out of line with that of our industrial competitors. I am afraid that it will have to be left to a Conservative Administration to effect real reliefs and proper reforms.

Mr. Pardoe: Like last time?

Mr. Rees: In the meantime, though we shall not be voting tonight against the Bill, we shall try to improve it, possibly even with the assistance of the hon. Member for Cornwall, North in Committee. We are conscious that the Bill is designed to show the alluring and acceptable face of Socialism, but we are also conscious that, in spite of the few deft touches by the Chancellor of the Duchy and the Chief Secretary, the fiscal face of Socialism remains, as ever, hard, raddled and rapacious.

10.40 p.m.

The Financial Secretary to the Treasury (Mr. Robert Sheldon): My first particular pleasure is to offer a welcome to my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar). I know full well that he is not entitled to be mentioned as the result of a maiden speech, but that does not prevent my enjoying saying something about one of the speakers who have taken part in the debate. It is on that ground that I say that I heard what he had to say with very great interest. I think that all those

Members who come in from a by-election bring something of the air of the particular arguments that they have used. In this case, my hon. Friend used them successfully in the by-election, and his contributions, on this as well as future occasions, will be heard with great interest.
The hon. Member for Weston-super-Mare (Mr. Wiggin) called the introduction of the surcharge on tobacco taxation some sort of breach, at least in the spirit of the three-year voluntary agreement between the Government and the tobacco industry which was announced in March 1977. I should say that the agreement was not a comprehensive answer to the problem, nor was it brought in to prevent any other action already in hand. In fact, the industry was well aware before it entered into the agreement that the Government had already taken an initiative with other member States of the Community, and this was aimed at allowing us to introduce a health-related surcharge. I personally have maintained close contact with the industry, both before and since the proposals were announced.
Perhaps I may comment briefly on the relief for bad debts. In this we have looked for a scheme which will make some provision for bad debt relief but which will be relatively simple to operate for both traders and Customs. We therefore provide in Clause 10 that for insolvencies occurring after 1st October the creditors will be able to claim on a tax-exclusive basis in an insolvency—this is for their own money, as it were—and claim the VAT part of the debt directly from Customs by an adjustment in their next VAT return.
This avoids the complications of traders having to account to the Customs for the tax element of any dividends which they subsequently receive, and they will, of course, obtain the relief on the tax element quickly and with the minimum of accounting problems. By limiting the relief to insolvency we shall be able to forgo the dividends for the tax element which should strictly come to the revenue, since the amounts involved would not justify the costs of making a separate claim. This will simplify administration for the Customs.
It would be quite impossible to achieve this simplicity if we went beyond insolvencies, since in other situations much


higher dividends are generally available, which certainly could not be ignored. A wider scheme would, therefore, have to be quite different and much more complex than the proposals we have in mind. Nevertheless, we expect that in a full year the proposed bad debt relief will cost the Exchequer about £35 million, which shows the value of the scheme to business.
A large part of this debate dealt with the alternatives of direct and indirect taxation. There were a number of differences in the views that have been expressed. The hon. Member for Cornwall, North (Mr. Pardoe) argued that there had always been too much obtained from personal taxation. The right hon. and learned Member for Surrey, East (Sir G. Howe) argued for a switch from taxes on incomes to taxes on expenditure. The right hon. Member for Down, South (Mr. Powell) thought that income tax was the best of all taxes, and he went into this and other matters with some theoretical discussion. For my part, I feel that perhaps his absence from the Treasury has enabled him to pursue theoretical discussions to the extent that he loses sight, perhaps, of some of the particular problems which currently in the Treasury we have to face. I look forward to the right hon. Gentleman's appearance in the Committee upstairs to help to restore his understanding of the immediate problems with which we have to deal.
The right hon. Member for Chipping Barnet (Mr. Maudling) dealt with these matters with a certain amount of scepticism, which I found a little attractive. There is a fashion in all these matters. Like all fashions, it stems from our tired approach to things familiar and the search for alternatives.
But I do not see direct taxes and indirect taxes as two extremes. There is a whole range of taxes covering the entire spectrum of discretionary payments that the taxpayer makes. Not being over theoretical, the politician has to devise the best way to get the revenue that he requires. He has to look at the way in which perhaps fashion may alter the incidence of these burdens.
I should like to give one or two examples. We know that rates are taken as an indirect tax, because there is a certain amount of discretion as to where one lives. But we also know that after a

person has bought his or her house and has gone to live in it, the amount of discretion is very limited, over a period of time, because the decision to move house is not taken readily. So for a certain time, depending on the person and his or her circumstances, the amount of discretion in this element of taxation is more limited than it is if a person wishes to buy, for example, a fur coat or an item of jewellery.
The purchase tax was probably the best example of as near perfect a discretionary tax as one could find. VAT is a little less so, because it includes such items as household goods. The income taxes and the employee's national insurance contribution are the best examples of the non-discretionary types of taxes. Currently these are seen as great burdens, indeed.
But if we look back over a fair length of time to the figures for 1935–36, we see that income tax and employee's national insurance contribution added together—and I think it right to add them together—amounted to about 33½ per cent. of total taxation. The figure rose to more than 40 per cent. in the war years, and since then a remarkably continuous percentage of taxation has been obtained from income tax and employee's national insurance contribution.
At the end of the war the figure was more than 40 per cent. In the golden years of Macmillan it was still 42 per cent. This year it is 41 per cent. So we have seen not the violent fluctuations that so many hon. Members seem to suggest have occurred in the division between taxes on personal income and other taxes but a remarkably uniform level.
In fact, from 1960, when the level was 42 per cent., it dropped to about 37 per cent. in the Roy Jenkins years. I see that the hon. Member for Blaby (Mr. Lawson) seems to doubt the figures. He is at liberty to put a Question to me and I shall do my best to give greater detail than is possible now. But these are the correct figures that we have produced. They show that, because of the high levels of purchase tax in the Roy Jenkins years, the amount of taxation obtained from personal tax, in the way that I have defined it, actually fell.
The reaction of the public generally to levels of income tax is not necessarily a sign that the division between personal


taxes and taxes on expenditure is wrong but that, faced with the problems that we have seen in recent years, people have found the levels of taxation rather higher than they could reasonably expect, and were happy and willing that they should be reduced. If the division between the two taxes is required to be in the direction of taxes on expenditure, as I believe it is, we can undertake to move in that direction, but it is easy to over-emphasise the problems involved for taxpayers.
In his earlier remarks, the right hon. and learned Member for Surrey, East made a rather surprising statement. He said, if I remember his words, that it was perfectly easy to make changes in public expenditure. That comment really surprised me. When I consider the agonies that successive Governments have gone through in making reductions in public expenditure—especially the last Conservative Government—it is truly surprising that the right hon. and learned Member should make a statement of that kind and seek to use it as the basis for a change in the Budget.

Mr. Nick Budgen: If the Minister is attacking the possibly united Opposition parties on the basis that they might reduce the tax take by £500 million, will he please tell the House what proposals for raising extra expenditure the Government would have in the event of those Opposition proposals being accepted by the House?

Mr. Sheldon: The hon. Gentleman is making an assumption that has yet to be tested, and we shall come to those matters very shortly. We shall see what happens on the Floor of the House and what the House decides.
The right hon. and learned Gentleman made that blanket charge that the Budget judgment could be altered as readily as he believed it could be. It is true that one can undertake a do-it-yourself Budget, and this is done by a number of hon. Members from time to time. I used myself, together with my right hon. Friend the present Chief Secretary, to engage in this exercise year after year in making a general assessment as to what ought to be done, and in producing pointers. We have a certain amount of fun out of it, and also received a considerable amount of instruction.
But we are not playing a game on this occasion. These are real decisions which have to be taken, and the consequences have to be faced. This is not just an exercise, and it is right to examine the consequences as fully as it done in making any Budget judgment.
As for the changes in revenue, it is easy to obtain figures in this respect. The Treasury provides this information as a result of parliamentary Questions. But that is not enough, because we have also to take into account the PSBR effects. How much are we to add to the PSBR as a result of these changes? How will it affect the money supply? I do not blame Oppositions for not finding all the answers, but I must point out the incompleteness of their examination, their analysis and their solution.
There are matters such as the employment effects. Have the Opposition considered these consequences? There are also matters such as prices, which may lead to pay increases, leading in turn to inflation. It is all very well for those who are perfect monetarists to say that this is not a matter for them, but not all Opposition Members believe quite as fully in that policy.
Then there is the question of phasing. How does the money come in at different parts of the year, and in particular in the year of introduction? It is not perfectly easy, as the hon. and learned Member would have us believe, to make these changes. It is hard to make the Budget judgment, and I believe that it is harder still to tinker with the Budget judgment.
At one time Budgets used to have names. There was the "pots and pans" Budget and the "chicory" Budget. They were called by whatever happened to engage the attention of the Press and the public. If one were to name this particular Budget, I suppose that one would call the Conservative's supposed Budget "a front-line Presidents" Budget. It seems to typify the kind of considerations that have been given to it.
If in this pseudo-Budget the Conservatives seek to include a £5 million cut from aid as a result of the measures they would wish to introduce, all I can say is that the right hon. and learned Gentleman and his team may not be awfully good at framing economic policy, but thank God they are not in charge of foreign policy.


What we have seen in this proposed Budget tells us more about the nature of the Opposition and their own internal conflicts, than their economic proposals.

Dr. Bray: Few Labour Members would have any sympathy with the sort of tax changes which the Conservatives would wish to make. But does not my right hon. Friend think that he is perhaps over-stating the difficulties for the House of Commons making changes in the Finance Bill? These are well within the margins of uncertainty with regard to the plans which the Chancellor has made.

Mr. Sheldon: My hon. Friend will know—this was made clear earlier in the debate—that what the right hon. and learned Gentleman seeks here is equivalent to one quarter of the Budget changes. We are talking about changing the Chancellor's Budget proposals by a quarter. These are significant amounts and I shall deal with them straight away.
But before doing so I should say that these Tory proposals are really big money proposals. We are talking about changing the basic rate and changes in the higher rates. Incidentally, they would introduce four higher rates, which has the advantage of simplicity. But the simplicity in the number of rates does not suggest that the relationship between the income of the taxpayer concerned and the tax which needs to be paid at these various levels has been carefully examined. I shall be happy to look at these matters in the course of the next few days, although I cannot be sure that these are matters which the Conservative Opposition have studied with the kind of care required of them.
The right hon. and learned Member for Surrey, East totalled his proposals at £485 million. The assessment that I have been able to have made shows that this is about £50 million too little. The total comes to about £535 million in 1978–79 or £800 million in a full year. As my hon. Friend the Member for Thornaby (Mr. Wriggles-worth) pointed out, there are yet other amendments which are yet to be put down, although we have heard from the hon. and learned Member for Dover and Deal (Mr. Rees) that the Opposition do not expect these to succeed. These, then, are not serious proposals. However, those outlined by the right hon. and learned Member for Surrey, East are. There is

a division between the serious proposals we heard enunciated by the right hon. and learned Gentleman and those which are not expected to succeed and which we have yet to see.
I should like briefly to mention phasing. The income tax changes, if there are to be any, will have to be back-dated to 6th April, however late in the year they come. The actual effect, therefore, is very nearly the same as a full-year effect.
On the other hand, indirect taxes suffer from the disadvantage of two lags. There is, first, the lag that arises naturally because of the date of implementation. For example, that VAT proposal would take a few weeks to set up.
I should have been delighted if I had gleaned any realisation of these problems in any of the speeches from the Conservative Benches. These are real problems that concern the running of the economy. Not even to take notice of them, let alone not to seek to argue the case, is to fail in the duty of anything like a serious examination of these important matters.

Sir G. Howe: The right hon. Gentleman was implying that the income tax changes starting from the beginning of the financial year would be the same as a full-year effect. But he must know perfectly well that not one of the significant changes listed on the last page of the Red Book in the current year amounts to anything like a full-year effect. There is a wide gap in every case—in some cases it is very wide. Will he confirm that that is so, and will he also explain how he arrives at his assessment that my figures are out of line with his?

Mr. Sheldon: I said that the actual effect was nearly the full-year effect. It is much nearer the full-year effect than the indirect taxes are. There are two lags with indirect taxes. There is the lag that comes between the date of the passing of legislation in this House and the date of implementation. VAT is a very good example of this. For administrative reasons there must be a fair time lag between the decision and the date of implementation, and a further time lag comes from collecting the tax. It takes three months to collect VAT after the date of implementation. There are also similar delays with excise duty as well.

Mr. Lawson: I do not want to go on about indirect tax, although it is quite clear that if that were to be increased, this could be done straight away by the regulator: it does not need a Budget resolution. But so far as income tax is concerned, the Financial Secretary is trying to mislead the House. He said that the first-year effect was nearly the full-year effect, but when he gave us his figures for our proposals he said that they would cost £500 million in the first year and £800 million in a full year. That means that the first year is five-eighths of the full year—not nearly the full effect.

Mr. Sheldon: The hon. Member for Blaby (Mr. Lawson) does not understand these matters of Customs and Excise. There are these basic delays. As far as direct taxes are concerned, the figure for the first year is £340 million, and for the full year £370 million. They are very nearly together. In VAT, however, it is markedly different, as it is in other duties.
Therefore, the loss of income not only has to be made good, if the deficit is not to be increased, but the problems of the time factor must also be taken into account. The right hon. and learned Gentleman has made it abundantly clear that he had not taken these matters into account. I understand his problem, but to exercise the full responsibility to which the Opposition now aspire, he must consider such things.
The right hon. and learned Gentleman also went into the question of how he would pay for this. He wanted to save £92 million on "municipalisation"—local authorities' acquisitions of housing. But he will know that the local authorities have freedom of action. Although one can cut the allocation of funds, there is no way of knowing what will be cut.

Sir G. Howe: I want an answer to my question, although I do not want to press the Minister too far. He said that he had estimated my figure as being £50 million short. How did he arrive at that figure—will he give me a breakdown?

Mr. Sheldon: I shall let the right hon. and learned Member have a breakdown in due course. If he is seeking to challenge my figures, of course he may do so. But our estimates are that he is £50 million out and that the total is £535 million in 1978–79. That is an assessment that I had

made in the limited time between his sitting down and my rising. If he wants a detailed breakdown, I shall do my best to oblige, but he is not in a position to challenge my figures.
The right hon. and learned Member also mentioned a saving on the freedom fighters. Aid is given to these countries, not for freedom fighters but for specific supplies and services associated with peaceful development. If he really believes that it would help our position in any of these countries to withdraw that money as a result of trying to cut public expenditure, I am sorry that he is undertaking such proposals.
The most important element of public expenditure that the right hon. and learned Gentleman sought to cut was the £300 million of the National Enterprise Board. I know that the National Enterprise Board has very much rankled the Opposition. I must tell the right hon. and learned Gentleman that this proposal is the most difficult part of his shadow Budget. It is difficult to cut £300 million from the Board in 1978–79, because the total amount is only £275 million. However strong and however firm the right hon. and learned Gentleman might be on these matters, he would not be able to cut £300 million. The £275 million is largely committed to British Leyland following the decision taken by the House. The House is also committed to further significant amounts for Rolls-Royce and other subsidiaries of the NEB. The other £100 million or thereabouts that is as yet uncommitted will assist industry generally. If the right hon. and learned Gentleman thinks that the right way to go about helping industry generally is to forgo these relatively smaller amounts, he is wrong on that score as well.
The right hon. and learned Gentleman finally referred to selective assistance. I presume that he means assistance given under Section 8 of the 1972 Act. I must tell him that a large part of that assistance is already committed to Chrysler and elsewhere. That large part is committed under agreements that have been endorsed by the House.
In The Economist of 15th April there was an article on the Conservative approach to public expenditure. It stated:
their priority tax cuts and their determination to keep the borrowing down. But a group


under Mr. Nigel Lawson has produced a list of detailed expenditure changes—though it will not be published.
I deplore the Conservative Party's secrecy although I admire its prudence. What we have heard from the right hon. and learned Gentleman is not, I think, part of the unpublished document. The cuts that he has mentioned probably come as a result of meetings in the Shadow Cabinet or elsewhere.
What we have seen in the shadow Budget is the substance that is even worse than the Shadow Chancellor himself. We already have a Budget that has given considerable sums to the £20,000a-year man who is married with two children. That man will get £463, and the Shadow Chancellor seeks to give him £1,535. We already have a Budget such that the man on £50,000 who is married with two children will have his tax reduced under the Bill by £616, but the right hon. and learned Gentleman seeks to increase his tax reduction to £5,483. These are enormous handouts. The higher tax rates that we have had to accept in recent years have been the price that the Government felt had to be paid for dealing with the national will to reduce levels of inflation. We feel that we have had advantage from the higher rates. I do not believe that suddenly as a result of Opposition amendments there should be the distributions that the right hon. and learned Gentleman proposes.
That there can be some changes in the higher rates in the period that lies ahead, the Chancellor of the Exchequer has willingly given his approval. That they can and should be put into effect now is clearly wrong.

Mr. Pardoe: I refer the right hon. Gentleman to the noted television intervention of the Chancellor of the Duchy of Lancaster last weekend, when he said that such changes were a very high priority. Indeed, I think that he said that they were of the highest priority for the Chancellor. Therefore, we look forward to their being carried out as the very next step of the Government. Will the right hon. Gentleman say by how much the take-home pay of the person that he has referred to would be increased if the proposals of the

Chancellor of the Duchy of Lancaster were carried out?

Mr. Sheldon: The decisions will be for the Chancellor of the Exchequer and the Government as a whole. The next step is not this Budget. We have seen a commendable move to assistance in this area. Further changes of the kind proposed by the right hon. and learned Member for Surrey, East and his right hon. and hon. Friends would clearly be unacceptable to the majority of this country.
The Finance Bill will be debated and examined very fully both here and in Standing Committee. It implements a Budget which seeks a modest relaxation of taxation in line with our present prospects. I ask the House of Commons to support the Bill.

Question put and agreed to.

Bill accordingly read a Second time.

Ordered,
That the following provisions, namely—

(a) Clause 11, and
(b) any new Clause first appearing on the Order Paper not later than Thursday 4th May and relating to stamp duty on house purchase, indexation for capital gains tax, deferred payment of duty on whisky or interest on repayments of overpaid tax,

be committed to a Committee of the whole House:
That the remainder of the Bill be committed to a Standing Committee:
That, when the provisions of the Bill considered respectively by the Committee of the whole House and by the Standing Committee have been reported to the House, the Bill be proceeded with as if the Bill had been reported as a whole to the House from the Standing Committee.—[Mr. Robert Sheldon.]

Committee tomorrow.

Orders of the Day — TRUSTEE SAVINGS BANK BILL

Not amended (in the Standing Committee), considered.

Motion made, and Question, That the Bill he now read the Third time, put forthwith pursuant to Standing Order No. 56 (Third Reading), and agreed to.

Bill accordingly read the Third time and passed.

Orders of the Day — SHIPBUILDING (REDUNDANCY PAYMENTS) BILL

Order for consideration of Lords Amendments read.

11.12 p.m.

Mr. Speaker: Before the House enters upon consideration of the Lords amendments to this Bill, it is my duty to point out that Amendments Nos. 10 to 12 inclusive impose a charge which, under our Standing Orders, requires to be sanctioned by a Money Resolution moved by a Minister of the Crown. No resolution has been agreed to.
I have to tell the House that in these circumstances a decision to agree to these amendments would be absolutely unprecedented. Indeed, Standing Orders Nos. 89 and 90, which govern our procedures in this matter, are so unquestioningly observed that I do not think that the House can properly discuss any amendment which contravenes them.
In view of this, although it is clear that the House must come to a decision on Amendments Nos. 10 to 12, I can see no way in which a debate on them could conceivably be in order. Without, therefore, in any way passing judgment on the merits of the amendments, I believe that I have no option open to me when we reach these amendments but to call on the Minister to disagree with the Lords in these amendments and, when he has done so, to put the Question without further ado.
I hope that the House will see, from what I have said, the extreme desirability of disagreeing to the amendments. The House will, however, have noted that Amendments Nos. 1, 2, 4 and 6 to 8 inclusive concern schemes which are linked with the amendments to which I have referred. These six amendments do not, however, directly involve a charge and do not in themselves infringe privilege. The six amendments are grouped separately and may, therefore, be debated in the usual way if the House so wishes. But I shall strongly deprecate any reference, other than purely incidental, during that debate, to Amendments Nos. 10 to 12.

Mr. Norman Lamont: On a point of order, Mr. Speaker. Of course, in no way do I question your ruling, but for future in-

stances is it not important to make clear that, in so far as there is a clash between the two Houses, this is a clash entirely of the Government's making? It would have been open to them to put down a subsidiary Money Resolution, precisely as happened with the Housing (Amendment) (Scotland) Bill 1969–70, the Maplin Development Bill 1972–73, the Oil in Navigable Waters Bill 1970–71, the Expiring Laws Continuance Bill 1970–71 and the Employment Protection Bill 1974–75, though I realise that they have decided not to do that.

Mr. Speaker: The hon. Member is right, but there is no Money Resolution to govern these amendments and this House must assert its own authority.

Mr. David Hunt: On a point of order, Mr. Speaker. May I ask for clarification of your ruling on one point in particular? This is an enabling scheme which does not deal with specific sums of money. It enables the Secretary of State to make schemes for providing financial assistance to employees of shipbuilding—

Mr. Speaker: Order. I am much obliged for the hon. Member's help but I have gone into this very carefully. The last three amendments make a charge which only this House is entitled to make. It is the right of this House that the Money Resolution must be observed. I must say that it would be the first time in centuries if the House did not take the advice that I have given it tonight.

Lords amendments considered.

Clause 1

PAYMENTS TO REDUNDANT WORKERS IN THE SHIPBUILDING INDUSTRY

Lords Amendment: No. 1, in page 1, line 22, after "Shipbuilders" insert
or any other body corporate which has its principal place of business in Great Britain and which, between 1st January 1976 and 31st December 1977, has in Great Britain—

(i) completed a metal-hulled ship with a length of not less than eighty feet; or
(ii) repaired, refitted or maintained such a ship in a dry-dock or graving dock in which that body corporate has had during that period an interest in possession or a licence to occupy that dry-dock or graving dock for a period of not less than one hundred and fifty days"

11.15 p.m.

The Minister of State, Department of Industry (Mr. Gerald Kaufman): I beg to move, That this House doth disagree with the Lords in the said amendment

Mr. Speaker: With this have been grouped the following Lords Amendments:
No. 2, in page 2, line 11, at end insert—
"length", in relation to a ship, has the same meaning as it has for the purposes of the Merchant Shipping (Load Lines) (Length of Ship) Regulations 1968;
No. 4, in page 3, leave out line 9 and insert—

"(a) in the case of a person employed by or by a relevant company of, British Shipbuilders, by British Shipbuilders; and
(b) in the case of a person employed by any other relevant company, by that relevant company."

No. 6, in page 3, line 16, at beginning insert "(i)"
No. 7, in page 3, line 18 after "company" insert "of British Shipbuilders"
No. 8, in page 3, line 20, after "Shipbuilders" insert—
or (ii) any other relevant company to authorise any of its officers or employees to determine on its behalf any such question which falls to be determined by it".

Mr. Kaufman: This amendment and those grouped with it are consequential on those with which you, Mr. Speaker, have advised the House to disagree. I ask the House to disagree with this and the other amendments in the group.

Mr. Norman Lamont: I should like briefly to comment on these amendments. These amendments allow the Government to set up schemes for redundancy which would apply to the private sector just as the scheme which the Government envisages applies to the public sector. As the House will recall, we raised this point at all stages of the Bill and we have attempted through the Lords to deal with some of the detailed criticisms. These included problems of the definition of a ship. This seemed to worry the Minister of State. We have tried to establish what sort of hull there should be on a ship and to draw a clear dividing line for the Minister.
One of the arguments we made was that the Bill discriminates between the public and private sectors. In the Lords

debates that was openly admitted by the Government.
Lord McCluskey said:
May I, with permission, just intervene to say that I have acknowledged from the start, and I repeat it now, that there is discrimination. I am merely making the point that there always has to be discrimination.—[Official Report, House of Lords, 9th March 1978; Vol. 389, c. 959.]
On several occasions he admitted what the Opposition both here and in another place said—that there is discrimination between the public and private sectors.
Our case against the Bill is that this discrimination embodies an element of unfair competition. It imposes on the small remaining private sector in shipbuilding and ship repairing a burden that they will not be able to meet. They are confronted with the same factors as British Shipbuilders and which face all those involved in the international shipbuilding crisis. They involve the same jobs and the same type of people, who are represented by the same unions. The same threat of unemployment hangs over the small firms as hangs over British Shipbuilders.
We say that the Government proposals are unfair to the companies and to the men employed in them. Furthermore, the Government's position is inconsistent with their own intervention fund. The Government have made great play of the fact that the fund is not exclusively for the nationalised sector but is available to private shipbuilding companies. If there is no discrimination in the intervention fund, why is there discrimination in the availability of Government money for redundancy?
We are left wondering why there is discrimination. What is the motive for it? Has it anything to do with the, at times, bitter political struggle over exempting ship repairing from the Bill? I hope that there is no political motive for this, although I am bound to say that we have not as yet heard a logical, coherent case put forward in the debates in this House or the House of Lords why the private sector should be left out of the Bill.
It is discrimination. Ministers admit this. We wonder whether it is compatible with Articles 92 and 93 of the Treaty of Rome which specifically say that aids to industry which discriminate between companies within a sector are incompatible


with the functioning of the EEC. We have raised this point on several occasions but have had no reply from the Government. I would have thought, on the basis of those articles, that this move might be incompatible with the Treaty of Rome. If we cannot have this point answered by the Minister tonight, perhaps this is something which others will have to consider raising direct with the Commission.
Other European schemes, such as that applying to the steel industry, have operated on an industry basis not on the basis of discrimination between companies. The steel redundancy scheme is available to the private sector companies in this country. Help is given from the EEC in addition to the statutory redundancy scheme which provides the legal minimum payments.
While this Bill has been proceeding through Parliament some companies have come in which were not previously within its terms. Ailsa Shipbuilding Company in Troon has now become part of British Shipbuilders. It has decided that there is a better future within the organisation. It has gone into State ownership since 1st April. What we should like to know from the Minister is whether Ailsa Shipbuilding qualifies for help under this legislation from 1st April or from the vesting date of British Shipbuilders, namely 1st July 1977.
We can draw a contrast between what is happening with Ailsa Shipbuilding and what will happen to Western Ship Repairers in Birkenhead. That company has got into extreme difficulties and has laid off 625 men. As things stand, that company will not benefit from the redundancy payments scheme, despite the fact that its difficulties have been caused by exactly the same international factors in shipbuilding as those about which the Minister never ceases to tell us in all our debates on the subject.
It may be said that it is a small company. Indeed, the Under-Secretary in our previous debate, went out of his way to say that the smaller companies would not be affected so much by the forces of the world shipping recession. That is true up to a point. But it is not a very good argument for drawing a distinction. It is not a very good demarcation line to draw in this legislation between small and large companies. Even if it were what the

Government were attempting, it does not seem to be a good argument when we find companies such as Western Ship Repairers being so badly affected and in an area such as Merseyside, about whose unemployment all hon. Members are concerned. I would have thought that there would be concern that, while the men at Troon are to benefit from the Bill, those at Western Ship Repairers apparently are not to do so.
We have so far heard no convincing arguments on this point. We have tried to read between the innuendoes of Ministers' speeches to discover what is the reasoning behind the exclusion of the private sector from the legislation. But no coherent argument has been advanced. Size is sometimes advanced as one reason. It is said that the smaller companies are the companies that have been left out But a moment's examination shows that that is not so. The largest ship repairers are outside British Shipbuilders, and small ships are built within the public sector. Whatever else it does, the Bill does not draw a distinction between public companies dealing with large ships and private companies dealing with small ones.
Another argument is that to incorporate the private sector would cause delay. We do not want to do that, but I cannot take the argument seriously when the Bill is retrospective.
Then there are vague references to administrative difficulties. That is a convenient argument if one cannot make out a good case, but I wonder what those difficulties are. To administer a scheme like this, one needs to know three things—salary, length of service and birth date. All three are verifiable—two of them through the PAYE system.
Other schemes, like the EEC steel scheme, are administered by the NCB computer, the same computer which will operate this scheme, for both public and private firms. The textile redundancy scheme, administered by the Government, covers private firms. It is difficult to find administrative arguments, easy though they are to fall back on, convincing.
Nor can one say that a large number of companies would have to be covered. The trade association, which has been so helpful and clear, estimates that only 20


companies would be affected by extending the scheme to the private sector.
The amendments would simply give the Government another enabling power—to create schemes for the private sector. If there were only a few redundancies in a particular case and the Government did not think that such a scheme would be appropriate, they could so decide.
The cost argument will also be raised. But we have never had any evidence of what this legislation will cost—whether £10 million, £15 million or £60 million. There is no financial limit. The only estimate which has been given is the cost per 1,000 men—which, during the passage of the Bill, rose by 60 per cent., from £900,000 to £1,500,000. So the whole area of cost is a vast fog and our proposal could be only a minimal addition to public expenditure. It is on grounds of fairness to the companies and to those whose lives have been spent working in them that we think the Government should agree with the amendments.

11.30 p.m.

Mr. Frederick Willey: If I understood Mr Speaker right, this debate is otiose, so I do not propose to prolong it. I am satisfied to record my attendance at this late hour. I would only add that we are worried in my area about redundancies in shipbuilding. Although we have the most successful yards in the country, some redudancies are currently being declared and we are anxious to expedite the passage of the Bill. I am delighted that the prospects of that are so good, and I hope that the Minister will do his best to see that we get the Statutory Instrument as soon as possible.

Mr. David Hunt: This is a regrettable Bill but—

Mr. Deputy Speaker (Sir Myer Galpern): Order. We are dealing with a series of amendments.

Mr. Hunt: This is a regrettable Bill to which a series of amendments have been tabled but it is, unfortunately, necessary. It is important that the Bill should be fair but as my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) said, in its present form it is manifestly discriminatory.
The Minister said on Second Reading that the purpose of the Bill was not to

put shipyard workers in a privileged position, but since then it has become clear that what the Bill does is to discriminate in favour of certain employees in the shipbuilding industry and that it in no way assists about 10 per cent. of those in that industry and about 25 per cent. of those in the ship repairing industry.
This is, in many ways, a most unsatisfactory scheme. We protested at many stages during the passage of the Bill through the House that insufficient information was being brought forward. As my hon. Friend said, the cost and the estimates of cost were at first extremely vague. I remember that in a moment of panache the Minister came to the Chamber, having just allowed us to receive some detailed documentation at the time that the Bill was last in this place. We looked at the information and tried to assess the cost, and it became clear that the original estimates were wholly wrong. How certain can we be now that we have the right estimates before us?
What the amendments seek to do is to look at the serious nature of the problem. The problem is not confined to particular companies involved in the shipbuilding and ship repairing spheres, but appertains to the industry as a whole. As part of the world problem shipbuilding and ship repairing are facing a serious recession, and it is wrong to pick out certain companies that are publicly owned and give them an unfair advantage.
We should not consider this matter merely from the point of the companies but should take into account the employees in the private sector of the industry. They belong to the trade unions which represent employees in the public sector. Why is it that because they are in the private sector they are to be left out of this scheme? It is manifestly unfair to do that. A number of extremely good arguments have been put forward against that being done, and I have not heard any real argument from the Government to show why these employees should be excluded from the scheme.
It was said in Committee that it was almost impossible to draft an amendment that would allow these companies to be included without causing serious anomalies. When one examines that argument one sees that it immediately falls by the wayside, because the scheme


itself introduces a whole series of anomalies. That is so because within British Shipbuilders there are a number of companies that have nothing to do with shipbuilding or ship repairing. Employees who are employed in different industries will be entitled to benefits under this scheme over and above the payments available under the statutory redundancy scheme. It may be that when the Minister decides how to implement the scheme in its various ways he will try to find some formula to remove those employees from the benefits of the scheme, but as it is designed at the moment they will be entitled to those benefits.
Surely that is no greater anomaly than extending the Bill to the private sector. I can see no difficulty in doing that within the proposed definition. The matter was seriously considered in another place and, having read carefully what was said there, I can see no danger of the Government in an extension of the scheme.
It will be up to the Minister when he sets out the guidelines for implementing the scheme to lay down what sort of employees will be entitled to claim benefits. It is wrong to exclude part of the industry for what seem to be dogmatic reasons. I can see no other reason for the exclusion. There have been arguments about delay and so on, but none of the Government's arguments holds water.
If the Government are not doing this out of petty ideology or sheer dogmatism, I cannot see why they are not prepared to accept the proposed extension of the scheme to people doing the same job and facing the same recession. If the Government have any positive arguments, I should be pleased to hear them, but I see no reason for not accepting the amendments.

Mr. Kaufman: The hon. Member for Kingston upon Thames (Mr. Lamont) asked about the attitude of the European Commission to the Bill. I have discussed it on several occasions with Commissioner Vouel, the Commissioner responsible for competition, and he has never questioned the scope of the Bill.
The Opposition claim that the question of demarcation is easy and should not create problems, but the hon. Member for Kingston upon Thames admitted that

the amendments in another place were tabled at the instigation of himself and his hon. Friends. Those amendments lay down a definition of 60-ft. ships, while the Opposition amendments in this House laid down a definition of 80-ft. ships. The Opposition have shown how difficult it is to lay down demarcations in this matter. The only clear demarcation is that of companies that are subsidiaries of British Shipbuilders or the Northern Ireland company.
The hon. Member for Kingston upon Thames also asked about the position of Ailsa, which has become a subsidiary of British Shipbuilders since vesting day. Employees of Ailsa will qualify under the scheme only if they have been made redundant after the company became a subsidiary of British Shipbuilders.
I am surprised that the Opposition should raise the question of Western Ship Repairers and accuse us of petty ideology and dogmatism. If it had not been for the petty ideology and dogmatism of the Opposition, Western Ship Repairers, would have been nationalised as part of British Shipbuilders on 1st July last year and all its workers would have qualified under the scheme.

Question put and agreed to.

Lords Amendment No. 2 disagreed to.

Lords Amendment No. 3 agreed to.

Lords Amendment No. 4 disagreed to.

Lords Amendment No. 5 agreed to.

Lords Amendments Nos. 6, 7 and 8 disagreed to.

Lords Amendment No. 9 agreed to.

Lords Amendments Nos. 10, 11 and 12 disagreed to.

Committee appointed to draw up Reasons to be assigned to the Lords for disagreeing to certain of their amendments to the Bill: Mr. Bates, Mr. Huck-field, Mr. Kaufman, Mr. Norman Lamont and Mr. Weatherill; Three to be the Quorum.—[Mr. Kaufman.]

To withdraw immediately.

Reasons for disagreeing to certain of the Lords amendments reported, and agreed to; to be communicated to the Lords.

Orders of the Day — MENTALLY ILL (TAMESIDE)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Dormand.]

11.42 p.m.

Mr. Tom Pendry: I do not apologise for raising once again in this House problems experienced by my constituents. But on this occasion I should like to think that the fears which I express tonight are shared by all not only in my constituency but in the metropolitan district of Tameside itself. The problem is that of the treatment and care of the elderly and adult mentally ill.
It has been recognised generally that the area health authority and the social services departments within Tameside are among the poorest in the country, and this applies especially to the psychiatric services. The three consultants for adults and the elderly were appointed to the Tame-side General Hospital on the basic understanding that they would operate within a policy laid down by the North Western Regional Health Authority to develop a comprehensive service for all categories of mentally ill in Tameside. It was also understood by them that it was to be the policy to have full hospital facilities locally based as soon as possible and practicable so that patients and their relatives would not have to travel long distances out of the area. It was also hoped to develop the community services, such as community day centres, enabling, through the building-up of these facilities, a reduction in the need to admit all patients to hospital for in-patient treatment. I regret that none of this has happened. The actual situation presents a very different picture.
I intend to quote some national figures and Government recommended figures from either the White Paper "Better Services for the Mentally Ill" or the Command Paper "Priorities for Health and Social Services in England 1976" and others to back up my claims.
Let me first speak of the in-patient situation. The Department of Health and Social Security norm for a population the size of Tameside's—that is, about 250,000 people—is 125 beds for the type of patient of whom I am speaking. At the Tameside General Hospital there are 61 beds in

operation. One ward has had to be closed for urgent repairs, and even when the four wards planned to deal with inpatients are opened by the end of this summer, there will still be only 78 beds avaliable—a shortfall of 47.
It is true that arrangements are in existence with two hospitals outside the region, but the beds there are also available to every other consultant in the North-West, and the maximum that Tameside is ever able to call on at any one time at Cheadle Royal is 12. The use of these beds can in itself create additional problems, as they come under the jurisdiction of another regional health authority. There is no clinical control by Tameside. The staff there are unaware of the local pressures on the patient. Family and friends have long distances to travel to the hospital, and in the case of Parkside, it is a 42-mile round trip from the centre of Tameside to that hospital.
Tameside, of course, has no say in the discharge arrangements, but has to provide the follow-up care, adding yet another burden to the overstretched facilities. The lack of local knowledge about the patient can clearly lead to errors of judgment in relation to discharge.
I hasten to add that in no way am I criticising the hospitals concerned, or their staff. I am merely pointing out an aspect of this arrangement—care outside the region—that is often not considered.
It has also been recognised that day places at hospitals can play a vital role in the care of the adult mentally ill and can also keep a patient out of long-stay hospital. In Tameside we have 50 such places. The DHSS norm is 160. At Hyde, in my constituency, there are 17 jointly financed day places. The DHSS norm is 32. There are an additional 17 local authority jointly financed day places. The DHSS recommended norm is 150. There are occasional social clubs, but overall this very important aspect of care is being sadly neglected.
This is also the case with hostels—both the medium-stay staffed hostels and the staffed short-stay hostels. The DHSS recommended that we should have 30 beds in the former category and 15 in the latter. It is sad to relate that Tameside has none in either category. We are at last getting some non-staffed local


authority group homes and flats, where the newly discharged patient has to look after himself or herself. Both the day places at hospitals and the hostels play a vital role in the care and treatment of the adult mentally ill within the community, and so help patients to rehabilitate themselves as well as to alleviate the pressure on inpatient services at hospitals.
I call upon the Minister to think very carefully about extending or at least making available the means to provide the recommended number of places in these categories of care, so as to free the staff at the hospitals for patients who need not be inmates and who are there because of the lack of vital rehabilitation facilities.
It is recognised by the consultants in the area that they would just about be able to cope with the most acute cases provided that they were relieved of the new long-stay psychogeriatric patients who occupy 30 per cent. of the acute beds.
I would suggest that the answer does not lie in the recent suggestion of the Mersey Regional Health Authority, into whose area Parkside Hospital falls. The authority suggests that 50 per cent. of the full range of psychiatric services for adults within the Tameside health district should be provided from Parkside. I hope that the Minister will join with me in opposing this plan, as it would be a grave retrograde step, causing distress not only to the patients but to the relatives, and causing a great deal of discontent among patients and general practitioners.
From the autumn of this year, there will be 55 in-patient and 60 day places at Hyde for the elderly severely mentally infirm. The DHSS recommends 100 places for each. That is a shortfall of 45 and 40 respectively. At present Tameside General Hospital ward 21 has 32 beds. Additional beds are available outside the area, but even these have recently been reduced in number.
We fare no better with the staffed old people's homes. The national average is 18 beds per thousand elderly. Tameside has eight per thousand—in other words, 260 for 34,000 elderly, 300 places below the national average.
I call on my hon. Friend to pay special attention to these facts and to do whatever he can with the funds available to

assist my area to build staffed old people's homes so that we in Tameside shall at least be able to provide the minimum care for the elderly.
In addition to requesting that priority be given to building old people's homes, I should like to hear from my hon. Friend when it is intended to have the psycho-geriatric ward fully opened at Hyde. Will he use his good offices with the regional health authority to ensure that ward 21 at the Tameside General Hospital is upgraded to supply 10 physiogeriatric assessment beds and 20 medium-stay beds to ensure that the present staffing complement is retained to cover the ward?
I have no time to talk about all the problems for the mentally handicapped or child psychiatry and the extremely limited facilities for psychotherapy, psychosexual counselling, adolescent treatment, and so on. I hope that on some other occasion I can return to these subjects, because their problems are as grave as those I am outlining.
I should like to stress that the service provided by the medical staff cannot be praised highly enough, but it must be extremely galling for highly qualified, dedicated people to see their efforts wasted by lack of facilities and the necessary ancillary provisions. The staff, patients and families in my area deserve much more.
So far I have spoken mainly about the frustrations, the shortages and the needs. Let me now speak of some success stories, though I am sure that my hon. Friend will be the first to appreciate that they will not continue if funds are not forthcoming to ensure that work can be carried out.
The Samaritans, MIND and the new Dial for Help service all play a vital role in the community and often do the work of the statutory authorities. Additionally, the National Council for Alcoholism has recently trained two volunteers to act as counsellors in Tameside. Within two weeks, and with practically no publicity, 24 people had come forward for help. More voluntary counsellors must be trained quickly to deal with this previously unmet need.
MIND has set up a group which will care for three people discharged from hospital. The money that this will save the National Health Service is significant. MIND hopes to set up more group


homes. However, although the social services are involved in so far as they provide the furnishings for these homes, should MIND run out of funds the present home or any of the planned ones would become a burden on the local authority and probably remain unused. MIND has also set up structured relative support groups, psychiatric clubs and has made other small but significant contributions towards easing the burden on the NHS.
The secretary of MIND, Barry Barrett, who single-handedly organises the volunteer groups, speaks to small groups and school groups, deals with the administration and is often called out in the middle of the night to help and advise relatives and neighbours, was employed under the Manpower Services Commission job creation scheme. At present, however, he is working for no salary, because the urban aid grant, which it was hoped would provide the finance for this scheme in the future, terminated on 14th April and has not been renewed.
I ask for my hon. Friend's support in this matter. I have asked the Department of the Environment to renew the scheme, and my hon. Friend's support would be most valuable in this regard. Should Mr. Barrett have to terminate his work, not only will a valuable member of the community be out of work but an invaluable service to the Tameside area will cease to exist. This would not only be wrong but, to my mind, would be criminally negligent.
I have spoken at some length, and I am grateful for the opportunity to do so. The time is ripe for action. I am sure that my hon. Friend has been impressed with the case, as my right hon. Friend the Minister of State was when he came to Tameside with me and saw the problems at first hand. We want rather more than sympathy. We want some action. We want to see that the size of these problems is recognised and that the problems are dealt with.
I urge the Minister to do all in his power to hasten the day when the plans submitted by the area health authority to alleviate the problems that I have outlined will become reality, not in 1987—which is currently the thinking of the Department—but in 1980. The people whom I represent deserve action now.

11.55 p.m.

The Under-Secretary of State for Health and Social Security (Mr. Eric Deakins): I am glad that we have this opportunity to debate the care of the adult and the elderly mentally ill in Tameside. I pay tribute to the efforts of my hon. Friend the Member for Stalybridge and Hyde (Mr. Pendry) in focusing attention on this issue, and very much welcome the active local concern which he represents this evening.
It may be helpful if I begin by sketching in a little of the essential background. Tameside Area Health Authority came into being in 1974 under the National Health Service Reorganisation Act 1973 and is responsible for providing comprehensive health care services for a population of about 250,000. The authority inherited various hospital and community health services, but until recently the health care needs of the population had not been systematically identified and quantified.
It has been recognised for some time that the North Western Health Region, which includes the Tameside area, has not received its fair share of the resources available to the Health Service nationally. It follows that, despite the best efforts of the staff, to which I pay tribute, services in the area for many health care groups, including mentally ill, are less than the people of Tameside have the right to expect from a national health service.
Having said that, this Government are the first to have recognised fully the needs of the North Western Region and we have started the region on the road to getting its fair share of the NHS budget. Last year the region had a growth rate in its revenue allocation of 3·2 per cent., the highest of any region and more than twice the national average. This year, following the Budget Statement by my right hon. Friend the Chancellor of the Exchequer, we have done even better, and the region has had a growth rate of 4 per cent. in its revenue allocation. However, because the region has been so badly deprived of resources in the past, it will still take some time to meet all the needs that have now been identified.
A similar pattern of deprivation emerges, I regret to say, in relation to the local authority personal social services,



which have a vitally important role in the care of the mentally ill and the elderly.
The social services have a considerable impact on health services, and vice versa, and this interdependence makes it essential to have effective arrangements for joint planning to secure the best balance of services and to make the most effective use of the resources available. Joint planning is vital to the Government's overall strategy of developing community-based services so that wherever possible people are kept out of hospitals and other institutions and are supported within the community.
A service which is jointly planned will generally fall to be financed by the responsible authority from its ordinary budget. However, the Government recognised that the different methods of financing health and local authorities could hinder effective joint planning and accordingly we introduced in 1976–77 arrangements to ease some of the short-term difficulties which might otherwise arise locally in jointly planned schemes.
In essence, joint financing is designed to allow the limited and controlled use of resources available to health authorities for the purpose of supporting selected social services spending by local authorities. In 1977–78 Tameside's joint finance allocation was £108,000, and £38,000 of this total was spent on supporting schemes for the mentally ill.
As my hon. Friend will know, Tame-side local authority district was created following local government reorganisation by the amalgamation of parts of Cheshire, Derbyshire, Lancashire and the West Riding of Yorkshire. The district, therefore inherited rather disparate and unco-ordinated social services provision from the former local authorities. At present there are six places for the mentally ill in sheltered accommodation. A further 10 places are currently being provided in three group houses and this scheme is being financed through the Government's urban programme. In addition, the local authority has in its capital programme a new 16–20 place home for the mentally ill, and work is scheduled to start on this next year.
I understand also that MIND is proposing to provide two group homes and


that the local authority has already allocated to them one house for this purpose.
I am glad that my hon. Friend has paid tribute to the work of this and other voluntary organisations. In this connection the grant for a MIND worker is something that I shall look into, and I shall write to my hon. Friend about it.
As my hon. Friend will know, there is a community health centre in Hyde which provides about 35 day places for the mentally ill on a "walk in" basis, and the running costs of this centre are at present met partially by the area health authority through joint financing. There is currently no separate local authority provision for the elderly mentally infirm, who are accommodated in the general provision for the elderly, which consists of 340 places in 10 homes, together with a day centre.
I turn now to Health Service provision and planning. Last year the regional health authority published its strategic plan setting out a comprehensive programme for remedying identified deficiencies across the whole range of health services and my hon. Friend may know the regional health authority identified as priority services those for the mentally ill and the elderly, including those suffering from severe mental infirmity. It may be helpful if at this point I outline in turn the policies for the mentally ill and the elderly severely mentally infirm which authorities have been asked to pursue in providing and developing services for these health care groups.
The development of services for these groups is one of the Government's most urgent priorities in health and social services. The Government's White Paper "Better Services for the Mentally Ill" (Cmnd. 6233), issued in October 1975, set out the long-term strategy for meeting the various needs of mentally ill people for treatment, care and support. The view that we take is that mentally ill people who can live successfully in the community—either in their own homes, in homes or hostels provided by the local authority or by voluntary organisations, or in other types of sheltered accommodation—should be encouraged to do so. When hospital treatment is needed it should be available locally, near to the patient's home and family, and people should not have to remain in hospital if


they do not need the specialised medical and nursing care provided there.
Past experience clearly shows that patients who spend long periods in mental hospitals isolated from family and friends have much more difficulty in returning to the community, and in some cases it has proved impossible. The psychiatric unit at the district general hospital is intended to be the centre of specialist psychiatric treatment of mental illness for all adults from its health district. It will act not simply as an in-patient department but as a centre providing facilities for treatment on both a day and in-patient basis, and as the base from which the specialist therapeutic teams provide advice and consultation outside the hospital.
Until the new pattern of locally-based psychiatric health services is fuly established—and we see this as being a 20-year to 30-year programme—the large mental hospitals will continue to have an important and valuable contribution to make in the specialist treatment of the mentally ill. The role of the mental hospitals and ther problems during this transitional period are currently being studied by a working group set up by the Secretary of State and due to report at the end of this year.
The new pattern of services also calls for a considerable range of facilities outside hospital for the care and support of the mentally ill. The support facilities must include more than a place to stay. As well as residential accommodation, domiciliary services, day care, employment rehabilitation services, sheltered employment, social work support, and appropriate health care in the community all need to be developed.
The Government's consultative document on priorities for the health and social services, issued in 1976, endorsed the aims of the White Paper and put particular emphasis on the need for more residential accommodation and day care for the mentally ill to be provided even at a time when resources were limited and when such developments might therefore have to be at the expense of other services. This priority was confirmed in "The Way Forward", published in September 1977 and in the national "Guidelines" that we published last month.
As for the elderly mentally infirm, it must be remembered that the vast

majority of elderly people suffering from some degree of mental infirmity—currently thought to number, in England, at least 500,000—are cared for in their own homes with the support of the primary health care and the social services. Some are accommodated in residential homes, either alongside other residents, in discrete wings or in completely separate homes, depending on the local authority's policy. However, about 17,000 such persons—mainly those suffering from severe mental infirmity or dementia—are currently in hospital, and many will no doubt continue to need this degree of care.
Others will come to need it, and an overall long-term in-patient provision for 3 per cent. to 4 per cent. of the elderly suffering from mental infirmity will probably continue to be desirable for the future. It is planned to replace the old mental illness long-stay hospital beds as quickly as possible with beds in small, discrete units within local community hospitals at a general level of between two and a half and three beds per 1,000 elderly population. A similar percentage of the elderly with mental infirmity may benefit from attendance at a day hospital, and provision for these facilities is recommended at a rate of between two and three places per 1.000 elderly population. For some time to come these facilities will no doubt have to be provided in adapted existing small local hospitals, but health authorities are being encouraged to allocate over the next four to five years about 30 per cent. of their capital earmarked for mental illness development towards replacing their unsatisfactory long-stay mental illness hospital provision—at current price levels an annual programme of some £8 million.
Day hospital provision and out-patient services will be funded separately. An overall development programme for these facilities of about 30 years is currently envisaged in order to achieve the recommended levels of provision.
The North-Western Region was a pioneer in moving towards the new pattern of locally-based mental illness services, and already two-thirds of admissions are made to district general hospital units.
Provision for the mentally ill and elderly severely mentally infirm in Tame-side is not ideal, as my hon. Friend has


said. Current facilities in the area are inadequate. At present there are at Tame-side General Hospital 80 mental illness beds, 50 day places and a further 46 beds for the elderly severely mentally infirm. The existing number of adult mental illness beds represents only about two-thirds of the provision indicated for that specialty by the region's norms of provision based on my Department's planning guidelines.
Similarly, Tameside has a little less than half the number of beds it requires for the elderly severely mentally infirm. The existing provision is at present supplemented by patients from Tameside being treated at other hospitals outside the area, notably Parkside Hospital, at Macclesfield.
It is recognised by the area and the regional health authority that this situation, where patients are treated some distance from their homes—is undesirable from the point of view of both the patients and their relatives, and the authorities recognise the need to provide more psychiatric facilities within the area.
As my hon. Friend will know, there is currently under construction at Hyde Hospital, in his constituency, a new unit for the elderly severely mentally infirm which will provide 56 beds and 50 day places at a capital cost of £1·3 million.

This unit is due to open before the end of the year and will be a very significant addition to the psychiatric facilities in the area. In addition, the regional health authority has decided very recently to include in its capital programme a new mental illness unit, at Tameside General Hospital, of 120 beds and 160 day places, and work on this is scheduled to start in the mid-1980s.
The completion of these schemes will mean that the residents of Tameside will no longer have to rely for psychiatric treatment on hospitals outside the area. I recognise that the starting date for the unit at Tameside General is not as early as we would all wish, but this is something that has to be seen in the context of the other heavy pressures facing the North Western Region, which has inherited some of the oldest hospital buildings in the country.
I hope that my hon. Friend will agree that while the facilities in the area for the adult mentally ill and the elderly severely mentally infirm are not adequate, this is recognised by the authorities concerned, and that they do have a continuing programme for meeting, the needs that undoubtedly exist and which my hon. Friend has so graphically described.

Question put and agreed to.

Adjourned accordingly at eight minutes past Twelve o'clock.